Property valuations are useful tools if you want to sell a home or purchase an investment property. They help you to understand the price that the market will pay for a property. Valuations are also useful for refinancing a property and pulling the new equity out for home renovations or to invest in other properties.
However, valuations are not an exact science and can have inherent limitations. They are estimates of the market value based on available information and professional judgment.
If you need a valuation, it’s a smart move to hire a qualified and experienced valuer who has a deep understanding of the local market and relevant industry standards.
Why Can Property Valuations Be Different
Benefits of Real Estate Evaluations
- Valuations help you manage your expectations and provide a benchmark
- You can impact your property’s value by making sure you put your best foot forward
Build Equity in Your Home
Valuations are useful for refinancing a property. Increased equity can also be used for home renovations or to invest in other properties.
Avoid Overcapitalising on Property Renovations
Renovations are a great way to build equity in your property. Getting a valuation before starting a renovation will tell you the property’s current value and your equity position. It will also help you set a ceiling on the renovation budget so you avoid overspending and ensure market demand when you come to sell.
Maximise Your Valuation When Refinancing
Depending exactly on what you’re looking for from your lender, a valuation is mostly unavoidable when refinancing. To get the best valuation when the valuer knocks on your door, follow these easy tips:
First Impressions Count, Even With a Property Valuer
Present your gardens, lawns, bedrooms, bathrooms, and kitchen as if it were for an open inspection. You only get one chance at this so make your property shine.
Provide Your Valuer with Recent Sales Evidence
Collect and present to the valuer recent sales evidence of comparable properties that have recently sold in your area. A valuer will do their own homework, however, the more evidence you can give them the better. Extra information on the current market can help the valuer determine the best valuation for you.
Collect Your Rates Notices and Land Tax Valuations
Also provide your valuer with your recent rates notices and land tax valuations. While they won’t provide a valuation figure, they can be helpful for your valuer in determining the figure you are chasing.
Be Open and Honest with Your Valuer
Any information you give to your valuer should be genuine and honest.
Highlight the Key Property Features
Point out key property features such as the air conditioning, a spa, or a pool fountain to ensure they are factored into the valuation.
Also, share with the valuer features that might not be immediately obvious such as underfloor heating, a recent kitchen renovation, or that the home has been rewired.
Future Renovation Plans
It’s a great idea to provide the valuer with your future renovation plans, particularly if you’ve had architect plans drawn up. These plans will help the valuer determine the future value of your home. This is particularly useful if you’re refinancing and could make the difference in securing financing to fund the construction work.
Why Property Valuations Can Differ
There are many things that impact a valuation outcome. In most cases, you will want a full valuation where the valuer does a walk-through of your home.
Sometimes valuers will rely on a kerbside valuation where they do a drive by inspection. This valuation is more commonly for older homes, or if you have great equity levels and are refinancing.
The third type is a desktop valuation, which is online research. While a lot of information can be gleaned from online research, your property can be potentially undervalued.
7 Factors that Affect Property Value
Here are the top seven factors that can cause variations in property valuations:
1. Property Valuation Methodology and Approaches
Valuers may use different methods and approaches to determine the value of a property. Common valuation methods include the sales comparison approach, income approach, and cost approach. The choice of methodology and the weight given to various factors can lead to differences in the final valuation.
2. Property Market Conditions and Data
Valuations rely on market data, such as recent sales of comparable properties, rental rates, and market trends. Valuers may have access to different data sources, resulting in variations in the information used for analysis.
Market conditions can also change over time, and variations in the data used can lead to differences in valuations. For example, there could be a change in suburb demographics, economic factors, and government policies.
3. Valuer Subjectivity and Professional Judgment
Property valuation involves an element of subjectivity and professional judgment. Valuers may interpret market data differently, prioritise certain factors over others, or have different opinions on property-specific characteristics. These subjective factors can result in variations in valuations, even among experienced professionals.
4. Scope of the Property Valuation
The scope of a valuation can vary, depending on the purpose and requirements of the valuation. Valuations may be conducted for different purposes, such as mortgage lending, insurance, taxation, market analysis, or before and after renovations.
The specific scope and objectives of the valuation can influence the factors considered and the final value assigned to the property.
5. Timing and Market Fluctuations Affect Property Valuations
Property values can fluctuate due to market dynamics, supply and demand, economic conditions, and other external factors. If valuations are conducted at different times or during periods of market volatility, variations in values are likely to occur.
6. Property Valuer Professional Competence and Expertise
Valuers can also have different levels of experience and local market knowledge. Differences in professional competence and expertise can affect the accuracy and reliability of valuations, leading to variations in property values.
7. Bank Valuations
The market price in a valuation can also be marked up or down depending on who is paying for the report. Valuers hired by a bank can price a property based on that financial institution’s preferences or dislikes for specific dwelling types and locations.
Banks have a more conservative approach, as their main objective is to protect the asset, being the mortgage, and ensure that in a worst case scenario that asset will be able to be repaid.
Many banks don’t like funding properties in flood affected areas, small dwellings under 50sqm, or postcodes where they feel over exposed with existing mortgages. In these situations, a bank can also instruct the valuers to deliver a conservative valuation.
Valuers Legal Responsibilities
Valuers are legally responsible for the information they provide. They need to keep that information on your valuation for at least six years, so typically, they can be cautious.
Though they might have relatively similar processes to follow when determining the valuation, they’re still people, and the level of caution can differ from one to another.
So do your research and find a valuer that you feel comfortable with, so you can get the best valuation outcome for you. You can also get multiple valuations and then present the highest valuation to your bank.
