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What is a property valuation

A property valuation, which is typically used by banks when approving a mortgage, is a report of a property’s estimated “market value”. The definition of market value is “the estimated selling price between a willing buyer and a willing seller in an arm’s length transaction, after proper marketing wherein both parties each acted knowledgeably, prudently and without compulsion”.

As the definition suggests, the actual sale price would ultimately differ from the figure contained in the valuation report. This is because it is next to impossible to factor in how an individual buyers emotions, their relative market knowledge and any other motivations might affect sale negotiations.

Lush Property - Shepparton - Property investment, Property development, renovation, buyers agent

When do I need a property valued?

The most common reason a property needs to be valued is because their bank/lender requires one. The property valuation is ultimately a “risk analysis” for the lender to ensure the value of the property covers the loan taken out.

The lender needs to have confidence that it will be able to recover any outstanding debt amount owed on the property, should the owner (or buyer) ever default on their mortgage.

Some of the lenders still have their own in-house valuers, or use automated valuation models or desktop assessments. However, in the overwhelming majority of cases, the valuation request is outsourced to an independent valuation company, who are recognised on that particular lenders panel of approved valuers.

Property valuations can also be required for financial reporting, for taxation compliance (particularly for Self Managed Super Funds), for mediation in family law proceedings, and for compensation claims made in compulsory acquisition cases.

How is market value calculated?

The most appropriate method for the overwhelming majority of homes is the direct comparison approach which looks at comparing “apples with apples” with recent comparable sales in the area. Fundamentally, the valuer will take into account and compare:

  • the size of the property

  • the number and type of rooms

  • the fixtures and fittings

  • the structure and condition of the building

  • the standard of the fit-out and the property’s architectural style

  • ease of access to the property

  • planning restrictions and local council zoning

  • the property’s location and level of amenity

  • the size of the land

  • the aspect, topography and layout of the block

Valuers will use a handful of recent comparable sales to give them a rough estimated value for the subject property, and then they will make adjustments to that estimate based on any significant differences identified between the attributes of each of the properties.

Sales are typically analysed out in terms of their land attributes, quality and size of improvements, the location and any planning controls. Only then can the sale property be compared to the subject property being valued.

Valuers will fully inspect the property in question, both inside and out, so that they can accurately determine the condition of the home and make notes of any structural faults or nuances that may have an impact on its market value.

Luke Jorgensen - Lush Property

Tags - Property Investment; Property Development; Renovation; Valuation; Valuer; First Home Buyer; Buyers Agent; Buyers Advocacy


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