Amongst many terms like “conveyancing” or “LVR”, property valuation is one of the terms commonly used whenever one is buying or selling a property.
So what exactly is a property valuation?
In simple terms, it is a rough estimation of the property value before selling. The value derived out of property valuation is by no means the actual property value since that would come from the selling price of the property.
Property valuation is conducted through qualified valuers who have undergone training. They follow a systematic approach where they evaluate the different factors such as property conditions and housing issues.
Market Appraisal vs Property Valuation
Not to be confused with market appraisals, property valuation is very different even though both give an estimate of the property value.
Market appraisals are typically done by your local real estate agent. It is a less formal approach to estimating the property value.
A qualified real estate agent might not be a qualified appraiser. Hence, the main difference between the entities mentioned above would be
- Property valuation done by valuers has a legal standing that banks can rely on. They are sure to give accurate and objective valuations since they are legally bound to their valuations.
- Valuers have sufficient training when it comes to doing valuations while real estate agents conduct appraisals based on factors such as industry knowledge as well as recent sales.
- Property valuation is a paid professional service done by valuers while market appraisals are often offered by agents as a free service to win you over as a customer.
Is it time for a property valuation?
The question of when property valuations should be done might arise now. The answer to that would be before you do a transaction. Hence, it will apply to both the buyer and the seller.
If you’re a buyer, doing a property valuation would ensure that you’re not overpaying for a property when buying privately. Compared to an auction, the value of the property can generally be gauged based on the participant’s willingness to bid.
According to Matthew Curtis, director of Curtis Valuations, the property valuation serves as a “risk report” for the lending institution, to ensure the security value of the property covers the loan.
In the scenario of a forced sale, where the previous borrower is unable to make repayments and give up the property, the property valuation will come in handy as lenders would be able to check if the valued amount is enough to cover the mortgage.
As for sellers, the valuation would help them get an idea of the potential price they could sell their property at. This allows them to price the property competitively and ensure that it’s not too exaggerated.
Knowing the potential selling price would also allow them to then decide if it is worth selling now or to hold it off until the market starts going up.
The second advantage for sellers would be to gain an understanding of the areas of improvement they can take to increase the value of their property. These can be things such as fixing existing problems such as giving their property a facelift to make it look newer.
What are the things valuers look at during a valuation?
Valuers usually take a look at the recent sale pricing to base their valuation report on. Besides sale pricing, here are some factors that they take into consideration
- Property size
- Size of land and property zoning
- Number of rooms and type of rooms
- Structure of building
- Topography, aspect and, layout of the block
- Ease of access to the property
- Environmental and market risk ratings
Interestingly, valuers look at many of the same things that a prospective home buyer would look for when assessing a potential purchase.
Firstly, valuers will get the numbers for recent comparable sales of similar properties to estimate the rough value based on average sale prices.
It is then followed by readjusting the pricing based on the above attributes, which will be conducted when they go down for a physical assessment.
After the assessment, they will start drafting out the report to provide to their customers. The report is usually 3 pages long which entails specifics such as in depth property descriptions like renovations underwent since construction and property title etc.
The report also includes findings on the fair market value of the property as well as risk assessment. Hence, property valuation reports are useful for banks as a legal document that can be submitted as part of the mortgage application.
How much does a property valuation cost?
It is found that the average cost of valuations is around $450. However, valuers may charge differently depending on the size of the property and the amount of work needed to be done.
However, if you’re tight on budget and just want to get a basic understanding of your property value, the alternative would be online valuations tools.
There are plenty of options in the market with paid ones that can cost anywhere from $24 to $165. Online valuation tools work by simply filling in basic information about the property such as an address, number of rooms, and condition of the property.
Besides being inexpensive or even free, online valuation tools can save you time as reports are almost generated instantaneously. All of this information can be obtained at the comfort of your home.
However, the cons of online valuation tools would be the lack of personalised touch.
Executed by a computer program, online valuation tools will not be able to understand important factors such as buyer’s behaviour as well as differences in property types.
These factors can play a huge role in the market price of properties as they directly affect the demand level in the market.
We have listed some tools which you can use:
- PropertyValue – Corelogic
- HomePriceGuide – APM data
At the end of the day, the type of valuation one might seek depends on the situation they have at hand and how ready they are to buy/sell a property. There are plenty of free options available but it is recommended to use those as a secondary reference as getting a personal property valuer is more accurate, albeit the higher fees.
If you’re looking for information on doing self inspection during a property viewing, we’ve covered that in the previous article which you can click here to read.