In a practical sense, the value of a property is what someone is willing to pay for it. But there are times when people need a ballpark figure before beginning negotiations.
A property valuation, according to the International Valuation Standards Council, is the estimated sale price “between a willing buyer and a willing seller in an arm’s length transaction, after proper marketing and where parties had each acted knowledgeably, prudently and without compulsion.”
As the definition suggests, the final sale price is normally different from the valuation stated in the report, as it’s almost impossible to guess how people’s feelings, market knowledge, and other motivations may influence negotiations.
When would you need a property valuation?
Both the buyer and seller benefit from a property valuation. By offering a clear indication of a home’s market value, it minimises a buyer’ risk of paying more than what is necessary for the property, and by providing a comprehensive evaluation of a property’s flaws, it can help a vendor decide which improvements need to be done to boost the property’s market value.
With that said, the most common reason why a property valuation is important is because the mort-gage lender (commonly a bank) makes it a requirement. Banks use the property valuation as a “risk report” to guarantee that the security value of the property covers the loan, in case the owner defaults on the mortgage.
Property valuation is also often requested for financial reporting, for taxation compliance, for family law mediation, and for calculating how much should be given to land owners for easements or land acquisition.
How to calculate property valuation?
The foundation of most home valuations is the direct comparison with recent comparison sales. Valuers will also consider these following attributes:
- The size of the home
- 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 home’s architectural style
- Ease of access to the home
- Planning restrictions and local council zoning
- The home’s location and level of amenity
- The size of the land
- The aspect, topography and layout of the block
First, valuers will come up with a ballpark figure for the home using a few recent comparable sales. Then, adjust the figure based on any major differences found between the characteristics of the home.
The valuer will also go see the home in question to evaluate its condition and list down any structural damages and nuances that might change its market value. Most valuers will give the clients a standard three-page report of their findings within two days of seeing the property.
If you are considering selling your home but are not yet keen on hiring a property valuer, you can get myself to view your property and provide a Current Market Appraisal or contact us for your monthly Post Code Report, to provide you a better understanding of the estimated value of your property.