Understanding the property valuation process – Part 1

How does a professional valuer perform a valuation on a property, what are some of the challenges, and how can property investors use knowledge of the valuation process to their advantage? 15563628 - house and question  3d image

The formal valuation process is an integral part of property investment and it pays for property investors to understand the ins and outs.

In this two part blog I’ll  look at how a professional valuer performs a valuation on a property, what challenges they face, and, importantly, how property investors can use that knowledge to their advantage.

What is a formal property valuation?

Put simply, a valuation is the estimated market value of the property on the date of valuation, based on what it would sell for under normal circumstances where both the buyer and seller are acting knowledgably and without undue pressure.

A valuation is performed by a professional valuer who has no stake in the property and the valuation is generally valid for a period of up to three months.property mortgage finance money

The difference between a formal valuation and a market appraisal (typically done by a real estate agent) is that a formal valuation can only be done by a qualified valuer with the prescribed education and training.

An appraisal is intended to be more of a guide to what the property may fetch if it was sold, based on local knowledge and recent sales evidence.

There are a few different types of valuations, including a Kerbside Valuation, which involves no internal inspection of the property, just a ‘drive-by’, and a Desktop Valuation, which simply consists of research done at a computer.

However, let’s focus on a Full Valuation, which involves the valuer undertaking a full inspection of the property, including an internal inspection.

Who uses valuations?

Valuations are most often used by lenders to determine the value of the assets being used as security for a loan, and to calculate how much they are willing to lend.

Buyers, sellers and property owners may also order valuations to determine the value of their existing assets or those they plan to acquire.

The inspection process

ad_build_wealth

Let’s take a common scenario where an investor is seeking a loan for a recent house purchase.

Before the loan is approved and the amount of the loan finalised, the lender will order a valuation from an independent valuation company selected from its panel (list) of valuers.

The valuer will visit the property and conduct an external and internal inspection, taking pictures and even asking the owner questions about the property.

The valuer will evaluate the land component of the property, which can make up a significant proportion of the property’s total value.

Among other things, the valuer will assess the size, shape, aspect, and topography of the land as well as the zoning and development potential.

Inside the property, the valuer will measure the size of the building and take note of the number and type of rooms, the property’s age and condition, its fixtures and fittings, its design and layout, and any unique characteristics that could affect the value. property data

Interestingly, valuers look at many of the same things that a prospective home buyer would look for when assessing a potential purchase.

The reason is that overall home buyers make up the majority of the market for real estate and therefore play a major role in determining “market value”.

Valuers are often acting under specific instructions from a lender.

For example, they may be instructed to value the property as a single residence even if the property has potential as a duplex or triplex development.

Tomorrow in the 2nd post in this series I’ll explain the role that sales evidence plays in the valuation process, some of the challenges faced by valuers and how investors can use this knowledge to their advantage.

icon-podcast-large

Subscribe & don’t miss a single episode of Michael Yardney’s podcast

Hear Michael & a select panel of guest experts discuss property investment, success & money related topics. Subscribe now, whether you're on an Apple or Android handset.

Need help listening to Michael Yardney’s podcast from your phone or tablet?

We have created easy to follow instructions for you whether you're on iPhone / iPad or an Android device.

icon-email-large

Prefer to subscribe via email?

Join Michael Yardney's inner circle of daily subscribers and get into the head of Australia's best property investment advisor and a wide team of leading property researchers and commentators.


Damian Collins

About

Damian is managing director of Momentum Wealth, a Perth based property investment consultancy firm. A successful property investor in his own right, Damian formed Momentum Wealth to assist time poor investors in building their portfolios and applies his many years of experience to help clients accelerate their wealth creation. Visit www.momentumwealth.com.au


'Understanding the property valuation process – Part 1' have 4 comments

    Avatar

    September 8, 2019 Ma'aji Samuel

    Am happy to storm into this write up, am about to carry out a land valuation tomorrow am sure this will help, thanks

    Reply

    Avatar

    January 31, 2019 Hudson Willason

    I have enjoyed reading this about proper property valuation process. Really, entire discussion is more helpful and all the tips are more effective too. I am very glad to go through this kind of helpful article. Thanks for sharing a nice article.

    Reply

    Avatar

    December 29, 2018 Valuations Victoria

    Great Blog! Thanks for sharing the info with us and keep on updating us.

    Reply


Would you like to share your thoughts?

Your email address will not be published.
CAPTCHA Image

*


facebook
twitter
email