What Are Property Valuations and How Do They Work
Before buying a house, you have to know the value it has on the current market. Naturally, you could value your property yourself – but you may take more things into account when doing so, such as emotional value. Thus, you can come up with a higher value.
A proper valuation comes in the form of a detailed report, made by an expert. As the name implies, it shows the property’s exact market value. The International Valuation Standards Council defines the property market value as the estimated sale price between a willing seller and a willing buyer in a transaction.
This price is determined after proper marketing and after both parties had acted prudently, knowledgeably, and without compulsion.
Therefore, it is safe to say that property valuation implies more than just a couple of things. After all, the seller wants to get a proper amount on his sale, while the buyer has to feel comfortable with the price proposal.
As mentioned above, you will want an independent view of your property’s market value. Obviously, this means hiring a qualified valuer. This ensures that you will get your property properly assessed and be presented with a value you are likely to be happy with.
Naturally, these qualified valuers will have to take a lot of things into consideration when assessing your property’s value. Basically, their job is to estimate the price that you could get if your property is given reasonable marketing and is meant to be sold within 90 days.
When a property is valued, a valuer will consider both intangible and tangible aspects.
An external and internal inspection of your property will mark the start of full and comprehensive valuation. The valuer will usually take around 48 hours to come up with a three-page report about your property’s value.
Costs will vary depending on the report format that you request and the property’s type – for example, the valuation of an average-sized property usually costs around $300.
What Will Valuers Look At?
Property valuers have to take more than just the property itself into consideration. Your property may be in perfect condition, but the simple fact that it is rather far away from public transport may lower its overall value.
Here is what valuers will look at and consider when valuing your property:
- Architectural Style
- Topography, Aspect, as well as the Layout of the Block
- Land Size
- Size and Layout of the Residence
- Development and/or Renovation Potential
- Number of Rooms – bathrooms, bedrooms, and the size of the kitchen
- Location in Relation to Shops, Amenities, Public Transport, and Schools
In addition to all of the above, valuers will also make use of two main methods in order to value your property. Namely, the summation and the direct comparison method.
The Summation Method
This method implies the adding of the land’s value to the value of the improvements that can be found on the land, such as the house, garage, pool, and so on. When it comes to the land value, things like shape, size, topography, location, amendments, and surrounding infrastructure will be taken into account.
On the other hand, improvements are valued considering their style, age, room number, architectural features, overall appearance, and possible renovations.
The Direct Comparison Method
For the direct comparison method, the valuer will look at recent sales of similar properties – within the last six months – then compare and contrast those properties with your property.
The comparison of properties acts here as a valuation guide. By doing so, the valuer compares two or more properties similar to your own and make adjustments if required. For any difference between a certain property and your own, the valuer will adjust the overall market value of your property.
How Are These Methods Used?
Professionals will usually combine the two mentioned methods in order to determine a so-called valuation range. Then, to come up with a proper valuation figure, they will rely on their skills and experience in the field.
This is why you should take your time when choosing a qualified valuer.
Three Different Types Of Valuations Banks Use
A full valuation is the most common and comprehensive type of valuation available. This is commonly used when a loan has a higher Loan to Value Ratio (LVR) and is almost always used when this is above 80% as Lenders Mortgage Insurance (LMI) is involved, deeming the transaction risky. A full valuation sees the valuer going out to the property to physically inspect the property inside and out.
A kerbside valuation involves an inspection from outside the property without the need of physically having to enter the property. The valuer will use this together with online information and comparable sales data to determine the property’s value. This is commonly used when the transaction/loan is seen to be at low to medium risk.
For a desktop valuation, the bank or valuer will usually only refer to online data available and comparable sales. This type of valuation is for low risk transactions with a low LVR.