A property valuation is a systematic process undertaken by an independent and impartial party to formally determine the value of a property. In most states across Australia, the process must be done by a qualified valuer who has undertaken formal education and training from a certified body.
It it differs from a property appraisal, which is a price estimate usually given by a real estate agent, but we’ll cover that more later.
Because the valuation comes from an independent party, it is considered to be unbiased and trusted to acknowledge all the relevant factors that can impact the value of a property. A fee is charged for a property valuation and an official report is produced.
• Property size
• Number and type of rooms
• Fixtures and fittings
• Amenities and special features
• Building structure and overall condition (assessing any structural faults)
• Presentation and fit-out
• Vehicle access, parking and garage(s)
• Planning and restrictions and local council zoning
• Recent sales in the area
• Other market conditions
You will need a valuation when a definitive value of a property is needed. For investors, this is typically when trying to obtain financing to purchase, or when refinancing or to draw down on the equity in your property to expand your portfolio. Most banks will require a valuation if you request a loan.
A market valuation, or property appraisal, is an estimate of how much a property would sell for given the current market. It is typically done by a real estate agent and is judged based on current trends. The agent uses their own knowledge of the market to give an educated guess as to the value of a property.
Unlike property valuations, which are done by an impartial party, appraisals are considered inherently biased. They are usually requested by sellers and tend to be skewed in their favour. Appraisals are to be taken merely as a guide as they are not definitive and have no legal standing.
If you’re planning to sell an investment property you may want to obtain a market appraisal from one or more agents to get an idea of what your property is likely to sell for. It is important to work with an agent who is familiar with your property’s location to get the most accurate estimation.
Risk ratings are used by lenders to determine how secure they consider the property to be for the associated loan.
The property will be given a risk rating between 1 and 5 (1 being low risk and 5 being high risk) based on 8 key factors:
Location – Is the location highly sought after? Is it well known? Is it close to schools, cafes and other amenities?
Land – Zoning, title and access.
Environmental Issues – Considers potential environmental impacts to a property, i.e. bushfires or flooding, as well as things like proximity to power lines or other high risk properties.
Improvements – Based on any improvements that may be needed for a property.
The Market – Which way the market is moving and current trends.
Market Volatility – How volatile the local market is.
Market Segment – Where the property sits within different market segments (for example, a big house in an area populated by smaller terrace may be deemed a higher risk).
Local Economy – How the local economy might impact the value of a property (such as in a mining town or new the impact of new cultural attractions).
Remember, your property team should be there helping you every step of the way, working towards your dreams.