help on calculating property value

lorhen1966

I really need some expert help and suggestions so hoping this is the best place. My sister and I have a financial arrangement to settle and dont know which way to do it. My husband and I moved into my mothers property, selling our own. The title deeds were transferred into the names of myself and my husband and we gave my sister some money, my mother some and extended the property. We agreed on a figure that we still need to provide to my sister to settle the rest of her "inheritance" as we were unable to give her all of it at the time. It was also accepted that we would not be able to provide the remainder of the funds until such time as the house is sold and as our mother still lives in the property we dont expect that to be until such time as she is no longer with us. We want to get this arrangement formalised but our problem is how we come to an agreement on the amount of growth. The solicitors have suggested a fixed rate such as 3 or 4% but we dont know what this figure has been based on and it is difficult to know what house prices will grow by in the future, particularly as there is no specific timescale for the payment to be made. We are unable to just use the actually growth in the value of the property as there has been substantial work including and double story extension done since taking it over. We thought an answer to this may be to use an average house price index such as Halifax. We are completely stumped and would welcome any thoughts and suggestions.........please

Cariad71

Hi,I'm a bit confused. You say you already 'agreed on a figure'. If that's the case, then wouldn't it be that amount plus the interest?
The latter part of your post suggests you haven't agreed a figure (hence your question).

leeelw

work out the house price before the extension was added and calculate market trends from there......or work out the house value and minus the cost of the extension.

Unless extensions and conservatories add significant changes people only tend to get back what they paid for it plus maybe a smidging extra, respect the fact they extension you have enjoyed and beniffitted from (not in all cases)

a mortgage surveyor doing a valuation will look for

a sale in the same area within last 3 months - if this is not viable you take a comparison area and comparable house for accommodation

3 sold comparisons from the agent (when they valued it, what was the valuation based on)

a brief view on how much was paid when the house was brought, and what the trend history has done since, you must take account of - was the property redeveloped and extended which can disjoint these figures

within these variance you can get a ball park figure

following on from that, how does it compare to what else is avaible to buy, what is the compition ?

if the compition has not sold, take into account its on at a marketting price which could be around 10% higher than its real value

sold comparisons are the best tool

lorhen1966

Cariad71 wrote: »

Hi,I'm a bit confused. You say you already 'agreed on a figure'. If that's the case, then wouldn't it be that amount plus the interest?
The latter part of your post suggests you haven't agreed a figure (hence your question).

We have agreed on the figure that she would have had if we had been able to give her the rest all together but we couldnt so effectively and essentially there is still a value tied up in the property that she wont get the benefit from for a number of years (my mother is only in her 60s so hopefully there are a good few years yet). Quite rightly so she should receive more than the figure (lets call it £50K for arguments sake) in say 20 years time but we dont know wether to fix a rate of return now - which would be as if we had lent her the money and she was getting that back plus a rate of interest or to retrospectively try to assess the increase in value in the property and how that has impacted on her "investment" by having it tied up in the property. Im looking for the pros and cons of both ways and which way most people would suggest going

ash28

I think if your sister has an interest in the property of "x"%, then it is unfair to put a value on it today and then try and work out the return -

You say it is like having given her a loan - actually it is more like she has given you the loan as she was unable to have all of the interest in the house that would have been due to her because you couldn't give her all of the money. So she has loaned you her interest in the house.

Theoretically you should give her the money plus the interest accrued (perhaps at a an average lending rate rather than an average savings rate) If she has £50k of the value of the house, after 10 years at 5% calculated daily it would be worth around £83k and after 20 years it would be worth around £136k. At 4% over 20 years it would be £111k.

You don't say what the percentage of the house she is entitled to and the percentage you originally gave her.

If you gave her 30% and she now has a 20% interest say, I would get the house valued (as if it didn't have the extension) when your mother is no longer with you and give her the percentage of the value she is due then. It may cost you less - it may cost you more.

Have you asked your sister what she would prefer? It is her interest. And has she been to see her own solicitor?

I think to try and fix a rate of return today stretching out such a long time is unfair to your sister. Interest rates may rocket and she could lose out big time.

Who knows what the value of property will be in 20 years time. It's not something you can predict and how would you estimate the growth of the housing market over such a period. You can't really use past prices to predict the future.

Cariad71

Hello again,

I would get a contract drawn up between you all that you owe her, let's say 50k for arguments sake and will pay back that plus the compound interest.


Alternatively, work out what percentage of the house she owns. Let's say 50k of a 200k house she owns 25%. Then pay her 25% of the final value .


Depends what your sister thinks. Potentially, there is more risk/gain in the latter.


Whichever route you go, good luck.

PasturesNew

Using some fake figures, one way to go might be to say:

House was worth £150k when you took it over. 1/3rd is your sister's (£50k)
You spent money on it; it was then worth £180k.

Now, the problem at this point is that you've presumably not got these two figures in writing (from even an estate agent's guesses) at the time.

But, if you'd done the above, with evidence of value, then when you come to sell the house the value to your sister could be seen as 50/180, so if it were worth £360k in 25 years' time she'd get £100k.

lorhen1966

thank you, there are some good valid points raised here.

We do have a valuation from the time that this was all done. I dont know the value of the property at the moment but Im assuming that as we have done extensive improvements including adding 3 additional rooms, it is worth more now than it was then, even with the suppressed market conditions.

If we needed to settle today for example, would a surveyor be able to give a value of what the property would be worth if it had been left as was ie no extensions. If that could be possible, it may be easier to resolve this and its not something that we had considered.

This was one of the reasons for the suggestion of using an average market value rather than the actual property.

Another problem that using the actual value of the property could throw up is that there is the presumption that we will maintain it in good order, obviously as this is our home it not our intension to let it go to ruin and allow its value to depreciate, but it also begs the question of whether we should be including some sort of discount for the upkeep of it!!!!

If we go down the compound interest route, how do we decided on a figure to use? we dont know what interest rate to use? who can tell what is going to happen in the future!!! and then theres the other problem of what calculation do you use because there are different ways of calculting and they all come out with vastly different figures.

The more I think, the more it hurts......!!

Cariad71

Let's say you owe her 50k. Calculate the interest that you would get for putting it in the best rate account that you can find. You would have to keep records of this each year, as assumedly your sister would move it around each year if she actually had it. So you would write in the contract that you owe her 50k plus compound at best rates. (you can't work the rates out until you pay her as you don't know them now).