When you choose to buy a property, it’s critical that your decision is supported by accurate and timely data. One of the most important attributes of a property is its “valuation”–that is, its estimated dollar value in the current market.
With a clear understanding of a property’s value, you can navigate a buying process with more confidence and certainty. Banks and lenders also use a property valuation to calculate and determine the conditions of finance offers.
In this article, I explore the need for valuations, the different ways in which they’re conducted, the criteria an evaluation assesses, and how to go about getting one.
What is a valuation used for?
Here are some of the key reasons to order a valuation on a property:
- To help determine an accurate purchase price. A property valuation by a qualified professional can provide buyers with the confidence that they have paid a fair market price for their chosen property. A valuation also helps buyers set a limit when they are participating in an auction.
- To assess potential resale value. Knowing the current value of a property will give you greater confidence in its future potential resale value.
- To negotiate more favourable loan terms. Lending institutions rely on property valuations to determine loan eligibility and interest rates, so having an accurate appraisal could lead to better terms when securing finance. This is also useful for loan re-negotiation, too.
- As part of divorce or estate settlements. In cases where disputes arise from inheritance or separation proceedings, a valuation can help settle these matters.
- Calculating a property’s capital gains. When you sell an investment property, the ATO may require a property valuation to determine any payable capital gains tax. Please note, this isn’t tax advice and may not apply to you—please speak with your tax professional for more information about this.
How are valuations conducted?
The type of property and the nature of its condition will determine the way in which it is valued. Here are three of the most common types of property valuations:
- Desktop valuation. This is a computer-generated valuation that doesn’t require a physical inspection. This valuation type is limited to a certain location, property type and loan-to-value ratio, and depends on what information the lender valuation system holds on the property. Desktop valuations are not as comprehensive as a full valuation (see below).
- Short-form valuation, also known as a “Full Valuation”. This valuation requires an in-person inspection of the property in question. A valuer will take photos and use recent comparable sales to determine what the property is worth in its current state.
- “To Be Erected” or “As If Complete Valuation”. This is a valuation predicting what a property will be worth once works are complete. This valuation is useful if you have a building contract (for either a new house or renovation/extension). A lender will need to complete this sort of valuation before they can lend you any money to fund the build work.
What attributes are assessed during a valuation?
Here are some of the things that are taken into consideration when a property is valued:
- Market trends and conditions. Property valuers will take into account local demand, council zoning, occupancy rates, and other market conditions that can affect the value of the property.
- Location. Generally speaking, properties located in highly sought-after areas with good access to schools, transport links and amenities tend to hold a higher value.
- Quality of construction. Valuations will consider factors such as the age of the building, energy efficiency rating, materials used in construction, fixtures and fittings as well as any structural damage and wear and tear.
- Size and layout. The size of the land or plot on which a property is constructed and its internal layout can influence its relative value.
- Condition of interior/exterior. The interior condition of a property including any necessary renovations or repairs required may also be taken into consideration. The external condition is also important, such as paintwork or landscaping that could add to or detract from the overall value.
Can anyone value a home?
No, not everyone can value a home. A valuation must be conducted by a qualified and accredited appraiser, who uses their expertise and access to market information to determine the value of a home.
How do I request a valuation?
Anybody can request a valuation–a simple search on Google or Bing will provide you with options to choose from. In most cases, if you are ordering a third-party valuation, you will need to pay a valuation fee.
If you’re applying for finance, a lender will usually organise their own valuation, at their expense. This is called a ‘bank valuation’ and is usually lower than a market valuation, because the lender will need to factor in risks created by possible market changes.
Can We Help With Your Property Journey?
If you’re looking for an expert team to help with your property journey, request a 30-Minute Finance Strategy Session during which you will…
- Get a better understanding of the lending options available to you, so you can buy or refinance with confidence
- Discover no-cost ways to save money on interest, fees, and charges
- Get an up-to-date picture of the lending landscape including rates, conditions, and how to structure loans
- Learn about our process to find you a better loan that could save you thousands.
This no-obligation session will be held with one of our experienced mortgage brokers.
Please be assured this will not be a thinly disguised sales presentation. On the contrary, you’ll receive our best strategic advice, specific to your situation, so you too can accumulate multiple properties without sacrificing your current lifestyle and accelerate your progress towards wealth.
Please note, the numbers and assumptions listed in this article are for educational purposes only. Individuals should seek specific advice pertaining to their unique situation and the real estate market before making any decisions.
Trilogy Funding Two is a corporate credit representative (Representative Number 506131) of BLSSA Pty Ltd, ACN 117 651 760 (Australian Credit Licence 391237)