Property valuation is a crucial aspect in most transactions. For a potential buyer looking to take out a loan, lenders will require this information prior to determining whether it’s a good idea. Valuation also allows a buyer to see whether they’re getting an excellent deal or already being snowed with regard to a property’s worth.
A dwelling’s market value refers to the property’s value at its best use on a date agreed upon by an informed buyer and a seller. However, it does not include unusual circumstances like off-market sales to a neighbour as well as transactions between family members or involving distressed sellers. This is because valuation is by nature a clinical, emotionless process. There can be no sentiment involved, which is why even experts in the industry will ask other valuers to look at their property if they feel too attached.
Also, there are no shortcuts to the process. Valuation takes time because you need to consider multiple sources and do inspections to be thorough. Valuers can’t afford to make speculations about the movement of the market as they must be impartial – legally, their assessments bear liabilities.
How does a valuer think? We show you.
Research the surroundings
Research is the core of the valuation process. Learn everything you can about the suburb the home is located in by interacting with agents, stopping in at auctions and comparing the results of property transactions.
Talk to the local government as well – look at council records and get information on zonings. Know what the restrictions are where renovation is concerned.
Moreover, consider the area immediately around the property. Does it face a busy road? Does the street have a reputation for criminal activity? Noise levels and lack of security can be a blow to market value even if the property is generally well-located.
Inspect within
Once you know the environment you’re dealing with, it’s time to check out the property for yourself. It’s ideal to look at the home as components rather than a whole. If you can measure the dwelling’s dimensions, do. Evaluate the condition of the place strictly – how will the property stand up against the elements and against usage as it is?
Then, ask yourself: how much of the land is actually usable? If the home is on a big, sloped block or the home is positioned so that the land cannot be properly maximised, then the space doesn’t add value.
Consider also other improvements to the site beyond the main property, such as landscaping and driveways. Do the available facilities overshadow everyone else? Or does the home look underdressed beside the other properties on the street? The goal is to simply be on par with the neighbours for easy comparison later on. Many property owners fall victim to overcapitalising – putting in facilities that look nice, but don’t actually add tangible value to the home.
Compare with similar properties
Look up transactions in that area involving similar properties to get a good idea of sale prices. Don’t cast too wide a net, though – limit your comparison properties to those that are nearby and have facilities like the home in question.
Take a peek at the “sold” section of your favoured property website and narrow down your search to like dwellings. You can also do it manually if it’s convenient – go around the neighbourhood, keep an eye out for sold homes and talk to agents about similar sales.
Single out at least three dwellings to compare with the property you’re valuing – make sure that you look at the median prices and not the outliers. This will help you determine an accurate market value range that’s close to the midpoint. However, don’t consider listing prices, which are never accurate and are almost always eschewed by professional valuers.
Use recent data.
Endeavour to have the best possible sales evidence to work with when conducting a valuation. Be diligent in looking up current statistics. The property market can and does change quickly – a negative event can send a booming market spiralling downwards. So using year-old data, for instance, would be regarded as false sales evidence.
Websites like Real Estate Investar and CoreLogic are great sources for general up-to-date suburb figures. Do also consult local agents because they’re likely to have the new data on hand.
Keep an eye out for the little things.
Valuers don’t look at the pomp and blare of a property, so flashy upgrades won’t do much good if the upkeep of the rest of the dwelling is poor. Valuers can typically forgive an unclean yard and a cluttered room, but when there’s too much mess and disrepair, it can influence the upper half of the value range.
A fresh paint job and a thorough cleaning can be adequate. Replace old fixtures, especially in the kitchen and bathroom, because valuers pay particular attention to these areas. Lovely presentation can help in driving a good valuation because for a buyer, it shows that’s there’s little that needs to be done with the property (therefore expenses are limited) before moving in.
Be realistic.
Ask yourself honestly what you would pay for that property if you didn’t have a vested interest. Don’t bring up what might happen in the local property market – valuers can’t make assessments based on market trend because it’s not foolproof – predictions can and do change. Valuers’ opinions hold a lot of weight with lenders because they tell it like it is. They are expected to paint a picture of the middle ground and serve as the voice of reason for a buyer.
Knowing how to think like a valuer helps you keep a level head where a property is concerned, and guides you in the ways on how you can generate good value for it. At the end of the day, property investment is business, and you need to do what’s best for that.
Valuers vs agents
Valuer and agent advice differ in several important ways:
Valuer assessments
- Have the perspective of an independent party
- Offer a value that’s between conservative and ambitious
- Are legally liable for the advice they give
- Are recognised by lenders
- Simply determine market value
Agent appraisals
- Have a stake in the selling of the property
- Can report on signs of the market’s direction
- Adjust to specific buyer requirements
- Help a seller determine the best possible sale price
A valuer’s perspective
- Be thorough. Inspect every aspect of the property that you think could affect market value – both within and beyond the main dwelling.
- Compare everything. Don’t just compare with similar properties in terms of price – compare in terms of the blocks of land, ancillary improvements and the condition of the dwellings themselves.
- Stick to the status quo. The property should match its neighbours in terms of facilities, but over the top extras may not add value. For instance, covered parking could be beneficial, but an added inbuild garage could be over-capitalising.
- Know the market. Don’t scrimp when it comes to investing your time into research – it’s important to be properly informed about the suburb, so go as many sources as you can find.
- Get multiple appraisals. Rather than going by the word of one local real estate agent, get appraisals from five or six different professionals, to gain a clearer understanding of the home’s market value.
- Adopt a detached viewpoint. Seek to back up real estate agent appraisals with independent valuers. Confirm the validity of data received yourself as much as you can.
Surround yourself with a team of professionals who can provide you with ongoing support and expertise in securing your financial future.
The Addisons Team are here to help!
