What is a property valuation?
While many across the country own real estate, the idea of a property valuation from an independent firm may still be a foreign concept. The benefits of a reliable valuation are wide-ranging, and it is important for property owners to understand the process.
A property valuation is a report that outlines the worth of a property based on objective data and market conditions. The valuation must be from a registered and independent firm to be seen as an official document that can be used in private and legal proceedings.
A definitive numerical value is assigned to the property by the assigned expert. Property valuation services in Perth can be performed on residential, commercial, industrial and rural properties by valuers with the appropriate qualifications.
Qualified valuers are registered with the Australian Property Institute (API) and adhere to the guidelines of the Royal Institution of Chartered Surveyors (RICS).
How does property valuation work?
The certified valuer will look at a number of different factors and apply a combination of reputable methodologies. While preparing the report they must ensure a high standard of precision. Market conditions and comparable sales will assist the valuer in their calculation.
Some of the key factors that a valuer will consider during a residential property valuation process are as follows:
- Location
- Size
- Features & Amenities
- Suburb's Reputation
- Street Appeal
- Renovations and/or Renovation Potential
- Damage & Issues
- Planning Restrictions
- Ease of Access
- Proximity to Schools & Hospitals
The assigned valuer will carefully assess the above factors when examining a property to make sure that they reach a fair and accurate numerical value.
Different Valuation Methodologies
The methodology that the valuer uses in their calculation will depend on the type of property and the purpose of the report. We have listed some of the most common approaches that property valuers follow:
Direct Comparison Approach
The most common approach when it comes to preparing property valuations. The valuer looks at the sales of similar properties in the area to guide them in their calculation. The comparable properties must hold similar characteristics and be used for a similar purpose.
Summation Approach
The summation approach involves adding the value of the land to the value of the improvements on the land. The approach determines a value for each part of the property and the surrounding factors influencing its market value. The sum of each of these parts is equal to the total value of the property.
This is also referred to as the “cost approach” and is mainly used as a secondary methodology to refine the final numerical value.
Income Capitalisation Approach
An approach often used for commercial propertiesa and preferred by investors as it considers the income an asset brings in per year without being sold. The Net Operating Income (NOI) is divided by the Capitalisation Rate to reach a fair market value.
The Net Operating Income is the amount a property generates after expenses and liabilities are paid, and the Capitalisation Rate is the return on the investment.
Bank Valuation vs. Property Valuation
A property valuation for mortgage purposes has an impact on the loan a property buyer is granted. Financial lenders often appoint an in-house valuer who prioritises their interests over yours. Some of the key differences between a bank valuation and a property valuation are as follows:
Bank Valuation
- The in-house valuer assigned by a bank will take a much more conservative approach when examining the value of a property.
- As bank valuations are not from independent third parties, the bank’s valuer will have an inherent bias towards the interests of the lender.
- A bank valuation is more than likely going to result in a lower amount than an independent property valuation.
- The bank will only lend a percentage of the bank value rather than the market value.
- A bank valuation report cannot be used in legal proceedings and only holds validity as a guide for the bank during mortgage processes.
Independent Property Valuation
- This is a valuation from an independent and registered firm that can be used in both legal and private proceedings.
- The valuers are API-certified and registered with the Royal Institution of Chartered Surveyors.
- The report does not have the aim of favouring either side and is based on objective evidence and market conditions.
- Professional Valuers are highly qualified and experienced professionals with a wide-ranging knowledge of how to prepare precise valuation reports.
- property valuation report is valid for six months after the date of completion.
What makes a property valuation valid?
In order for a property valuation report to be valid, it has to meet strict regulatory and legislative requirements. First and foremost, it must be prepared by a qualified valuation firm.
The API-Certified Valuer must adhere to the international standards set out by the Royal Institution of Chartered Surveyors. Guidelines of conduct and practice must be followed in every task.
Qualified valuers approach each job with the highest standards of due diligence and care to maintain a consistent level of quality regardless of the property type or purpose of the report.
Property experts stay up to date with industry benchmarks and business best practices to ensure they are aware of any changes in l egislation or regulation.
Summary
The importance of property valuations should never be underestimated. Having a clear and precise value for a property is beneficial for buyers, sellers, and investors of property.
How a real estate valuation works depends on the purpose and scale of the report, but it always involves a comprehensive assessment of the property. Qualified valuers are specifically trained to provide accurate valuations across a variety of property types.
There are three main approaches to property valuations, and the Valuer will use a combination to reach a final numerical value.
For more information on property valuation services, feel free to speak to one of our qualified experts today.