What is a property valuation?
In practical terms, a property is worth what someone will pay for it. But sometimes you need a ballpark figure before the negotiations get underway.
What is a property valuation?
A property valuation is a detailed report of a property’s market value, which is defined by the International Valuation Standards Council as the estimated sale price “between a willing buyer and a willing seller in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion”.
As the careful wording of that definition implies, the final sale price is usually different from the valuation contained in the report, as it’s near impossible to predict how people’s emotions, market knowledge and other motivations might affect negotiations.
A property valuation will take into account numerous factors, including the condition of the building and the quality of its fixtures and fittings.
When would I need a property valuation?
A property valuation offers benefits to both buyer and seller. In providing a clear indication of a property’s market value, it reduces a buyer’s risk of paying over the odds for a property; in offering a detailed analysis of a property’s weaknesses, it can help a seller decide which renovations to make to enhance a property’s value.
That said, the most common reason why people need a property valuation is because their mortgage lender (usually a bank) requests one.
The bank needs to be confident that it can recover any outstanding amount owned on the property, should the buyer default on their mortgage.
Some lenders still have in-house valuers, or use internal algorithms or desktop assessments. However, in the majority of cases, [the property valuation] is outsourced to independent valuation companies who are recognised on the lender’s panel.
Property valuations are also often required for financial reporting, for taxation compliance, for family law mediation and for determining the amount of compensation given to land owners for easements or land acquisition.
Some of this work is highly specialised and is governed by detailed legislation.
How is property valuation done?
Direct comparison with recent comparable sales is the main component of most residential property valuations.
The sales are analysed in terms of land attributes, improvements, location and planning controls… [and are then] compared to the property being valued.
However, other property types can require different approaches. For example, commercial property requires more financial analysis and development sites can require more planning consultancy.
Valuers will also visit the property in question, so that they can assess the condition of the building and make a note of any structural faults and nuances that might affect its market value.
They will take into account the home’s floor plan and fit out, as well as any garages, carports or out buildings.
What is the difference between a property valuation and a real estate agent’s appraisal?
Unlike valuations conducted by a qualified valuer, appraisals by real estate agents have no legal standing and should only be considered as a guide to pricing.
They base their informal valuation on recent sales in the area and their experience, and will offer the service free of charge.
Licensed valuers, on the other hand, charge a fee for their service. They are legally responsible for the information they provide and so must base their appraisal on facts. Consequently, their valuations are more comprehensive than a real estate agent’s appraisal.
How can I increase my house value?
You can’t change your property’s location but you can make changes to the house. Think about a renovation or extending the floor area of the house: can you add a bathroom, bedroom or entertaining area? What about improving your indoor-outdoor flow? Make sure the property is well presented: can you tidy up the garden, or remove any untidy trees or structures? Are their any views that can be taken advantage of, or can you make vehicle access easier? Give your important rooms – the bathroom and kitchen – a mini makeover. It can often be fairly cost-effective to update the cabinetry, bench top, light fittings and fixtures, too. Even a quick lick of paint can do wonders for the property’s overall look and feel. Does your home have covered areas for vehicles? If not, could you add a carport or garage? Give your property a general tidy up, and be mindful of your property’s curb appeal, as this will greatly influence a buyer’s first impression. If your block and house looks neat and tidy from the street, it is likely to benefit the valuation.
If you are thinking of selling your home or property but not yet ready to commission a property valuation, you can get a free suburb report containing the sold prices of properties similar to yours, plus local median property prices and a snapshot of the area’s property supply and demand, to help you better understand the estimated value of your property.