What does a bank valuer look for?

Property stakeholders often feel a little nervous about a bank valuer visiting.

After all, valuers show up, poke around and then send a verdict to the lender about whether the price paid, or estimate made, ‘stacks up to market’.

It can feel like there’s bad news pending, particularly in a softer property price cycle like we’re experiencing right now.

But the discomfort is often unfounded, and mostly fuelled by a fear of the unknown.

You might ask…

What exactly are they doing in there?

What is it they’re looking for?

Is there anything I can do to lift my chances of a positive outcome?

Well, I’m here to tell you that in many ways, your concerns are unwarranted.

While there are a number of professionals who can give you a reasonable idea of what your property is worth, the one that counts most is the registered property valuer because banks rely on their opinion before approving your loan.

Valuers have always been around, but what they actually do and the elements they look for in a home remain somewhat of a mystery to the average property investor.

Not only that but understanding their process can actually help you add much-needed dollars to your worth.

After all, there is a science to valuation that can help you understand the process.

What do property valuers do?

A property valuer is very different from a real estate agent, although they will look at similar things.

A real estate agent tells you what he thinks the market will pay for a property, often advising on ways you can maximise the outcome and boost the end result.

Meanwhile, a valuer will give an assessment of what the property should achieve on the market based on evidence and assuming the holding is sold ‘as is’ on the date they inspect it.

Those two approaches can bring very different results.

Property valuers are highly trained and expertly qualified.

And they’re independent.

They work for a number of people, from governments to property developers, but a big part of their business is from banks.

Banks employ valuers to help them determine if the property is adequate security for a loan.

If you’re buying a holding, they will have a reference to the contract price.

But if you’re using a property you already own as security for your finance, then it takes additional skill to lock down a current market value.

How do valuers assess property values?

First of all, it's important to recognise that property valuers hold professional qualifications and are registered with State authorities to conduct assessments that can be relied on by their clients.

They will also be affiliated with a professional body such as the Australian Property Institute or the international body, the Royal Institute of Chartered Surveyors.

All this is to say they are legally liable for the service they provide and must prove their opinion stands up to the scrutiny of a courtroom.

Valuers will therefore follow strict processes and guidelines to ensure they’re on the money.

The key is the definition of market value space which case law defines as:

The estimated amount for which an asset or liability should exchange on the valuation date 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.

There are arguable points within this definition, but basically, the valuer is assessing what your home should sell for in its “as is” condition at a specific date and time if it had been openly and fairly marketed.

Knowing this shows why valuers won’t predict future property value movements based on musings about market direction or what renovations and improvements you hope to carry out.

Here are the three steps that property valuers take:

1. The inspection

A property is typically inspected and viewed by a valuer as having three interrelated elements.

• Land – Location, position, aspect, size, dimension, and topography are all considered by the valuer.  They are looking for all the pros and cons across these, and other, components.
• Dwelling – Age, size, construction, layout, accommodation, condition, utility. Again, the valuer is wandering through your home and taking in what a typical buyer would consider a plus and a minus.
• Ancillary (or site) improvements – Fencing, landscaping, driveway, pool, shed pathways, tennis courts, and any other extra constructions separate from the dwelling.

A valuer will progressively work through these three elements of your holding, taking note by sight and use of measurements to complete a comprehensive and descriptive picture of your holding.

They will also rely on data from various other sources around town planning and location.

2. The sales evidence

The basic, primary method of assessment is called the Market Approach and it simply relies on comparing your property to other properties that have sold in your area recently.

By use of databases, listing portals, and their local agent contacts, a valuer will gather three-to-six property sales that are nearby, recent, and similar to your home and research the attributes of those properties.

The valuer’s skill through their experience, art, and science is determined by how much in dollar terms your property is better or worse than the comparables.

The house next door sold last week for $700,000, but is smaller, older, and doesn’t have a pool?

Yours is worth a certain amount more than that.

An identical house across the road sold for $825,000 but on a bigger block with better views?

Yours is worthless.

This progressive comparison across a collection of reasonable sales soon provides a tight range of value that gives a fair indication of what you should achieve.

There are other approaches to this valuation that help double-check the figure, but using comparable sales is considered the preeminent approach.

3. The report

With all this information collated, the valuer will now send a report to the banks.

It’s important to realise that along with the figure, the valuer will be asked to comment on any risks associated with the property itself or the market it’s in.

For example, if high-tension power lines traverse your lot, they will rate a mention.

If you’re in a single-industry town and things are looking a bit dire for the major employer, expect that to be part of the report.

In some instances, risk ratings can have as much impact as the figure when it comes to whether or not you’re approved for a loan.

Valuations are key to building a portfolio but getting the best result possible depends on your understanding of the valuation process and identifying ways to improve your outcome.

• Also read:The latest Corelogic Rental Market Report
• Also read:The Boom and Bust of our Property Cycles: A Journey Through the Investor’s Mind
• Also read:Perth housing market update | April 2024
• Also read:Latest property price forecasts for 2024 revealed. What’s ahead in our housing markets in the next year or two?
• Also read:Sydney housing market update | April 2024

What do property valuers look for?

There are two main methods that residential property valuers employ when determining what a place is worth.

• The direct comparison method

This is the first and primary approach which involves the analysis of recent sales of comparable properties in the local area over the past six or so months and seeing how those sales compare to your property.

By using sales evidence in close proximity to your home, the valuer is able to account for the way buyers view important locational factors as well.

• The summation method

This is where they sum together the added value of the land and its improvements, including the house and other ancillaries like a pool or landscaping.

It requires such skills as allowing for depreciation due to wear and tear or economic factors, working knowledge of construction costs, and the ability to assess overcapitalisation.

No matter what the method, here are the three things that property valuers look for.

1. Land facets

When assessing the value of the land in a given location, it’s about much more than size.

A valuer will look at shape, dimensions, and topography too.

They’ll also look at position, aspect, and views.

They are taking in where the sun falls on the dwelling and yard. They’re considering access and exposure to noise and other factors.

All of these things impact the value of the land.

A derelict old house on a waterfront block will still fetch a pretty penny, whereas a mansion on a gullied block with a sharp slope might be a bit tougher to sell than you’d imagine.

2. Inside matters too

Land value is certainly the launch pad for value, but improvements are where things rocket.

With the house, property valuers look at the floor space of a dwelling, and how it’s utilised through great design.

While bigger square metres do tend to justify a higher figure, smaller homes that are sympathetic to making the most of what they offer their residents will be rewarded with a higher value.

After all, a rabbit warren of a floor plan will see some dollars shaved off compared to a really well-thought-out flow.

The number of bedrooms and bathrooms matters, too.

If a four-bedroom home has only one bathroom, this will affect the value.

And of course, the condition of the bathroom is important.

If it’s old, dated, or falling apart, that will cost you.

Similarly, the kitchen is critical.

It’s the heart of a home, so its size, condition, and inclusions are all taken into consideration.

In fact, the quality of fixtures, fittings, and features throughout a home – and how they relate to each other and maximise liveability – is a critical consideration in value.

Another thing that valuers will look at is car accommodation.

If there’s secure off-street parking, preferably in a lock-up garage, then that’s a big tick.

Even a driveway space is better than nothing.

And of course, any other improvement to the site will generally add value – from a swimming pool to a tennis court or granny flat… even down to fencing, landscaping, and driveway.

The valuer is also considering what may or may not be an overcapitalisation in a particular area.

Are pools the norm?

Are buyers willing to pay substantially more for one in this suburb?

The valuer will consider this in their assessment.

3. The neighbourhoods

Valuers don’t just look at the land and dwelling that the bank is lending for.

They also consider elements beyond the boundaries.

They’re looking at what types of properties are neighbouring and how these might impact value.

They will also assess the value impact of the area you’re in.

They will look at the proximity to schools and lovely parks that families consider important.

They’ll look at lifestyle amenities and public transport aspects.

Shopping centres, retail strips, hospital facilities, and employment hubs also play a part.

Any planned or in-progress infrastructure could also contribute to the value of the dwelling.

Can you actually influence value?

Setting aside the idea of a major renovation, are there things you can quickly do to help a valuer reach your estimate of value?

Well… yes.

Firstly – presentation helps, so if you have a valuer arriving, mow the yard, clean the house and remove any out-of-place items.

This can lead a valuer to think – even subliminally – that this is a well-maintained home where the owners take pride.

Valuers are independent and specially trained, but even so, if it looks like a hoarder’s den when they arrive, it could be hard for them to see through all the junk to get a clear picture of what the property is worth.

Secondly, complete those uncompleted tasks.

Don’t have a valuer arrive when just half the garage walls are painted, or a vanity has been removed and you’re waiting for a replacement.

The valuer is compelled, by lender guidelines, to value ‘as is’ on the day.

If the house is incomplete, they have to report it to the lender.

Finally, put together a folder of supporting, relevant sales evidence that aligns with your estimate.

Ask local agents for recent sales, particularly in a rising market, and provide these to the valuer.

Understanding the valuation process helps put your mind at ease, and allows you to adopt a plan for the best possible outcome.