In practical terms, a property is worth what someone will pay for it. But sometimes you need a ballpark figure before the negotiations get underway.
A property valuation is a detailed report of a property’s market value. This is defined by the International Valuation Standards Council as the estimated sale price “between a willing buyer and a willing seller in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion”.
As the careful wording of that definition implies, the final sale price is usually different from the valuation contained in the report, as it’s near impossible to predict how people’s emotions, market knowledge and other motivations might affect negotiations.
A property valuation offers benefits to both buyer and seller. In providing a clear indication of a property’s market value, it reduces a buyer’s risk of paying over the odds for a property; in offering a detailed analysis of a property’s weaknesses, it can help a seller decide which renovations to make to enhance a property’s value.
That said, the most common reason why people need a property valuation is because their mortgage lender (usually a bank) requests one.
The property valuation serves as a “risk report” for the lending institution, to ensure the security value of the property covers the loan.
The bank needs to be confident that it can recover any outstanding amount owned on the property, should the buyer default on their mortgage.
Some lenders still have in-house valuers, or use internal algorithms or desktop assessments. However, in the majority of cases, [the property valuation] is outsourced to independent valuation companies who are recognised on the lender’s panel.
Property valuations are also often required for financial reporting, for taxation compliance, for family law mediation and for determining the amount of compensation given to land owners for easements or land acquisition.
A direct comparison with recent comparable sales forms the backbone of most residential property valuations, though valuers will also take into account the following attributes:
First, valuers use a handful of recent comparable sales to give them a ballpark figure for the property in question, and then they make adjustments to that figure based on any significant differences found between the above attributes of the properties.
The sales are analysed in terms of land attributes, improvements, location and planning controls… [and are then] compared to the property being valued.
However, other property types can require different approaches. For example, commercial property requires more financial analysis and development sites can require more planning consultancy.
Valuers will also visit the property in question, so that they can assess the condition of the building and make a note of any structural faults and nuances that might affect its market value. Most will then provide the customer with a standard three-page report of their findings within two or three days of their visit.
The exact cost of a property valuation depends on the size and value of the property, and each valuer will also charge slightly different rates for their services. That said, the majority of valuations will cost somewhere between $300 and $600, and most valuers will provide the customer with a standard three-page report of their findings within two or three days of their visit.
Unlike valuations conducted by a qualified valuer, appraisals by real estate agents have no legal standing and should only be considered as a guide to pricing.
Agents will often offer an appraisal of your property when trying to win your custom. They base their informal valuation on recent sales in the area and their experience, and will offer the service free of charge.
Licensed valuers, on the other hand, charge a fee for their service. They are legally responsible for the information they provide and so must base their appraisal on facts. Consequently, their valuations are more comprehensive than a real estate agent’s appraisal.
If you are thinking of selling your home or property but not yet ready to commission a property valuation, you can get a free suburb report containing the sold prices of properties similar to yours, plus local median property prices and a snapshot of the area’s property supply and demand, to help you better understand the estimated value of your property.
Source – https://www.realestate.com.au/advice/what-is-a-property-valuation/?pid=article-page|source:advice:article-page-bottom