Valuations: The key elements that valuers look for when deciding residential valuations…

Whenever you want to borrow money to purchase a property or conduct renovations, your lender will employ a professional, registered valuer to give them an independent assessment of the property’s market valuation. Why? Because the lender needs to confirm the property provides adequate security for its loan.

ValuatorPut another way, a financier must be confident they can recoup their money by selling the asset if you default on the loan. The lender will use this market valuation to determine how much money they are prepared to lend you.

Lenders always conduct a professional valuation, even if you have already obtained one yourself, as it’s important that their valuation be independent and unbiased. A professionally prepared property valuation is essential if you are trying to accurately assess the amount of equity you have in your home.

By refinancing your property and drawing on its equity, you can make other purchases such as investment properties, stocks and shares, home improvements and so on.

Methodology

The core philosophy for a valuer is to realistically assess the property based on a legal definition of market value which is the estimated amount for which an asset should exchange on a specific date between a willing buyer and a willing seller in an arm’s length transaction where the parties each acted knowledgeably, prudently and without compulsion.

In other words, it’s the price the home will sell for on a given day between two people who are acting reasonably.

Valuator MethodsThere are two methods valuers use to determine market value. The first is called the Direct Comparison method. Put simply, this involves valuers researching recent fair-and-reasonable sales of similar properties in your area within the last six months. They then compare these to your property determining if this researched sales evidence is inferior, similar or superior. These comparison properties act as a valuation guide enabling the valuer to compare like with like and make adjustments up or down if there are any material differences between your property and the sales evidence.

The second method is called the Summation method. This involves a formula which sums up the added value of the land to the added value of the improvements on the land – such as a house, pool and garage. Land value takes into account things like size, shape, location, views and surrounding infrastructure. The value of the improvements allows for things like age, style, architectural features and overall appearance.

A properly conducted valuation will use a combination of these two methods.

Residential

Prior to visiting the site (and utilising software and market data) the valuer will review the sales data of similar properties transacted over the last six months. This research will also include simple data on the key fundamentals of the property they’re assessing – location, land and building size, amenities etc as well as checking the zoning to see if there are any restrictions on the title (for example, a single dwelling covenant which does not allow development, which in turn has an impact on the ability of an investor to add value to the site) or any other covenant or easements on the property.

Value PropertyOnce the preliminary work is complete, the valuer inspects the property to understand its particulars and review the surrounding area. This physical inspection of the property takes about 10 or 15 minutes for a valuer to complete in most cases and is, put simply, a “walk through” from the front of the property to the rear. The valuer will inspect major features of the land and buildings, measure floor areas and complete a brief description of each of the spaces. Special areas of focus are the age and quality of finishes and improvements, fixtures, fittings and general layout.

The valuer completes the review and then takes a physical measurement of the land to confirm that what’s being purchased is in accordance with the title details. This can be a crucial issue, particularly with properties where the major asset is the land, rather than the building attached to it.

Once the physical inspection is complete, the valuer will drive past the sales evidence. The aim here is to get a level of comfort that the comparisons used are sufficiently ‘like for like.’

The valuer will provide their report to the financier, including comments and risk ratings that highlight the positives and negative of the asset in relation to its suitability as loan security.

It’s important to note that quite often the owner’s expectations as to value differ from the figure included in the valuation report. This is a good time to review details of the evidence gathered and discuss how they compare. If there are local comparable sales the valuer has missed, these should be considered, added if appropriate, and the valuation adjusted to reflect this new information.

Commercial

refinance your property portfolio

If the valuation is for a commercial property (sitting inside a self-managed superannuation fund for example) then the key considerations change somewhat.

When assessing a commercial property, the main factor the valuer looks for is an income stream.

In addition to gathering comparable data on sales in the area and the quality of the area/suburb itself (e.g. type of properties on offer, number of vacant properties in the vicinity, industry types), the valuer also sources data on rental yields (rental divided by sale price) achieved over the last 12 months and adopts these as a tool for comparing and assessing value.

In addition to these core numbers, issues such as services (on-site parking, transport linkages, proximity to retail etc), current lease terms and tenant history contribute to the valuation.

For more information about property valuations, talk to us today. As your mortgage broker we can often access market data that will help establish an approximate valuation of your home – which may be all you need to bid at auction or pre-arrange finance. If you require a professional valuation, ask us about a referral to a reliable organisation.

Discuss your specific needs & formulate the right strategy for you. Get in touch to organise your complimentary 60min session today!

The information provided in this article is general in nature and does not constitute personal financial advice. The information has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on any information you should consider the appropriateness of the information with regard to your objectives, financial situation and needs.

Andrew Mirams

Andrew Mirams

Andrew Mirams is the Managing Director of Intuitive Finance and is a highly qualified mortgage advisor who holds dual diplomas in Financial Planning (Financial Services) and Banking and Finance (Mortgage Broking). Andrew’s expertise covers all aspects of lending for a diverse range of applications – from first home buyer loans or property upgrader loans, property investor loans, expatriates and loans for self-employed. With almost 30 years of experience, Andrew has been acknowledged by the mortgage industry as one of its best performers with multiple awards including regularly featuring in both the top 100 mortgage brokers list and Top 50 Elite business writers. Andrew was voted Victoria's favourite Mortgage Broker at the 2015 Investors Choice Awards, and won again for the same category at the 2017 Better Business Awards. The team at Intuitive Finance has also figured prominently by winning the 2016 "Best Independent Office (<5 brokers)" and "Best customer Service" Awards, and more recently at the 2017 MFAA National Awards, they also took out the "Best Customer Service" Award, a recognition which speaks for itself! Visit Intuitive Finance for more information.
Andrew Mirams

12 Comments. Leave new

Hello Andrew, Nice post regarding property valuations, Thanks for sharing .

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Andrew Mirams
May 2, 2018 8:27 am

Pleasure Adam, glad you enjoyed it.
you might also enjoy this article https://intuitivefinance.com.au/bank-valuation-vs-market-value-much-property-worth/

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registered valuer vacant land capital gains tax Sydney
August 1, 2018 10:25 am

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analyzing tһese kinds of tһings, so I am going to convey һer.

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Romeo Property Valuers
December 21, 2018 6:28 pm

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Thanks for the feedback, we are glad your enjoy it and like the content we produce.

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Benefits of having an off-plan property that one is talking about

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Hello Andrew, Really Good Post about the Property Valuations.

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Thanks Eliza

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Nice Blog!! The content you have shared is very elaborative and informative. Thanks a lot for sharing such a great piece of knowledge with us.

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Andrew Mirams
March 1, 2019 9:25 am

Our pleasure, glad you enjoyed it.

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Great Post related to Property valuation.

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Andrew Mirams
April 2, 2019 12:43 pm

Thanks for the feedback

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