What is a property valuation?

A property valuation, not to be confused with an ‘apprasial’ may seem like yet another expense on your property journey, but they can be a necessity for a successful real estate transaction. As an integral part of the formal lending process, it is very important that you don’t let emotion dictate what you pay for a home. Quite frankly, your lender won’t share that same emotion!

As a home buyer and if you’re borrowing to purchase your next home, it is pretty much guaranteed your lender will request a property valuation at some point to start the formal lending approval process.

In this article we explain what property valuations are and the importance they have when buying or selling a home.

What is a property valuation?

A property valuation is recognised as an independent, legally documented assessment of the value of a property. Valuations can only be submitted in writing and by a qualified and registered Real Estate Valuer.

The valuation report will normally contain the following information:

• Property summary: Title details, zoning, land size, etc
• Risk analysis: property risk and market risk
• Valuation and assessment summary: this is where you’ll find the magic number (what they think it’s worth) and a rental estimate
• Land summary: identifier, sight description, services, etc
• Main building details: condition, materials, pc items, etc
• Ancillary improvements: such as fences, paving, established landscaping
• Sales evidence and market comparable: sale price, level of market activity, how the property was sold, comparable sales, etc
• Additional comments
• Important notes, and disclaimers
• Photos

When is a property valuation needed?

Valuations are normally requested by sellers or buyers, solicitors or financial institutions to establish current market value on properties for sale, re-evaluation of assets, liquidation or realisation, rental assessments and compulsory acquisition.

Request for a property valuation can be for a number of reasons. By and large, the situation will require a definitive value to be ascertained that can then be used for various scenarios. These can include property settlement, dispute resolution, deceased estate, asset accounting, obtaining finance to purchase, or refinancing on the equity in your property.

When property valuations are used for buying a home

Banks usually require a property valuation when lending for home purchases, however under some circumstances they may opt for a drive by or desktop valuation instead of a full formal valuation. In our experience, we have found the type of valuation is determined by the level of borrowing and security attached to the purchase.

When taking out a mortgage or refinancing, your lender will want a valuation before approving your finance to ensure the value of the property covers the security of the loan. Your lender needs to be confident that it can recover any outstanding balances if circumstances leave a mortgage unpaid. If the property must be sold, your lender will use the funds to repay the outstanding debt.

Depending on your Loan to Value Ratio (LVR), the lender will want a valuation done at a particular time during the transaction. A very high anticipated LVR might have the lender order a valuation before unconditional exchange of contracts. A lower LVR may mean the lender will be comfortable to conduct a valuation just after exchange and before final approval of the loan. It is always best to check with your lender before contracts on a property are exchanged unconditionally.

Property purchases can fall over if a valuation is way lower than the agreed sale price, and the buyer can’t make up the shortfall in the value to mitigate the bank’s perceived risk. For this reason alone, it is extremely important not get carried away with paying an over-the-top emotional price for a home – the banks don’t share that same emotion with you!

How do valuers come up with a figure?

Firstly, a valuer should visit the property to conduct a thorough inspection of the property. They will note

• measurement and details on the building structure
• condition of the building; structural faults
• number of rooms and their layout
• presentation
• fit outs, fixtures and fittings
• vehicle access and any garages, carports or out buildings
• features of the piece of land
• any other improvements, such as fences and pools.

Photos will be taken which helps identify the property and highlight certain features of the property.

After the valuer has visited the property and before determining a value, the valuer will conduct research on current market conditions, planning restrictions, council zoning, relative location and discuss recent sales in the immediate area with selling agents.

What is the difference between a real estate appraisal and a licensed property valuation?

Real estate agents often provide appraisals on a property when aiming to get a listing for a sale. The appraisals are based on other comparable sales in the area, current market conditions and their experience. An appraisal is an estimation of what they think the property could sell for and how they justify that estimation.

In the real estate world, appraisal reports are often referred to as CMAs (comparative market analysis). This is different from a valuation carried out by a licensed valuer, who must base their report on facts as they are legally responsible for the information they provide.

Thinking of selling? Increase the value of your home with these tips.

If you are thinking about selling your home and want to know what might help when the property is valued, below are some thoughts and suggestions:

• The property’s location can’t be changed but you can change the house and garden. Think about increasing the floor area of the house by adding an extra bathroom, bedroom or entertaining area, improving the indoor-outdoor flow, add decking or landscaping. Make sure all work is compliant or approved, otherwise it may diminish the value!
• Have a well-presented property. Is the house due for a paint? Tidy up the garden or remove any untidy trees or structures. Are there any aspects or views that can be taken advantage of? Can vehicle access be made easier?
• Give bathrooms and kitchens a mini makeover. Cost effective ways to spruce up these areas are to change doors, update cabinetry, change the bench top, update light fittings and fixtures.
• Do you have a covered area for vehicles? Can you add a carport or garage? Again, make sure it’s approved!
• Get a building and pest inspection so you know what needs attention.
• Give your property a general tidy up such as clearing gutters and cleaning hard surfaces.

Basically, to get the most out of your valuation, make sure all aspects of your block and house are neat, tidy and well maintained.

Can you get an independent property valuation before selling or buying?

Yes! You can contact an independent valuer and engage them to perform a valuation just for you. The reasons you would consider doing this are:

• To recognise the difference between price and value
• To help with your buying or selling decisions
• For an unbiased assessment
• To minimise emotional or personal attachment which can cloud judgment
• To have as a negotiating tool, since a valuation is legally binding
• To prevent any financing surprises

 

Having an assessment from a valuer can help with important decisions. If you’re buying, it can assist you to pay the right price for your next home. For an existing home, it can help you decide whether now is the right time to sell or how much equity you may have to unlock and pay for renovations, etc.