Astute property investors should think more like a property valuer and approach each property transaction rationally, without emotion and armed with as much information as possible.
Blogger: Robert Randall, director, Mclennan Steege Smith & Associates
Some of the most common questions about property valuations focus on how to ensure the best valuation possible and how they differ from a property appraisal.
These questions usually asked by someone who has been disappointed by a past experience where they had put a lot of effort into the interior design only to find the valuation price didn’t reflect what they or their real estate agent considered the market price.
Property valuation versus appraisal
Investors and home owners are sometimes surprised by the substantial difference between a market appraisal and valuation.
Real estate agents provide property appraisals using their knowledge of sales in your neighbouring area and their professional experience in order to gain your listing.
It’s an agent’s job to get the most for the seller of a property through marketing and sales techniques.
However, a property valuation is independent of an agenda and based on facts. It is a key part of the bank’s lending process along with other elements like employment and credit history or your ability to pay back to the loan.
It’s definitely not the job of a valuation professional to speculate when determining the value of a property.
Guided by industry standards
While it’s not an exact science, a good valuer usually provides a valuation based on recent sales of similar properties plus other relevant information.
Valuers are guided by industry standards that start with the legal concept of market value that is “the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a winning seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently, and without compulsion”.
It is best to find a valuer who is experienced and knowledgeable about the area you are considering investing in or where your property is located. This is particularly relevant if you are investing interstate.
In determining the value of a property, the valuation expert will visit the property and look at numerous things including land and building size, construction details like the type of materials used in construction, for example fibro or brick, the location, other sales in the area, the condition of the existing dwelling, and ancillary details like pools, garages and off-street parking.
In the case of off-the-plan, the relevant information doesn’t come from the glossy sales brochure but rather from the builder’s plans and tender. Also, finding out what and when they are going to build and any additional features.
It’s worth remembering that there is no point in indicating to a valuation professional that you intend to make improvements because assessments are made “as at today”.
Simple ways to add value to your property
Marble benchtops, Italian appliances and the latest light fixtures will cost you a lot, but may not necessarily translate to a higher valuation.
The following are some simple tips that will work in your favour.
- Get the basics right: make sure that the yard is neat and the lawn trimmed
- Ensure that the interior is clean and tidy, as dirt, damp patches and mould won’t help your cause
- Clean the windows and remove any clutter that’s lying around the house and property
Keeping emotions in check
Attending an auction with a professional valuation obtained independently and without prejudice is a great way to ensure that you don’t get caught up with the excitement and overstretch yourself on the day.
A bank will make their decision using their valuation, but knowing what you should be paying is a great way to take the emotion out of any investment decision and particularly useful as a practical negotiating tool.
If you are thinking of investing in an area you don’t know anything about, like interstate, then it’s best to obtain an independent valuation from a professional that is located near that property prior to entering into any negotiations. That’s because they know the area and they know that market.
Ways to think like a property valuer when investing in property
- Views: Can you build up or replace a wall with sliding glass doors/windows to take advantage of a view
- Extra rooms: However, those rooms must fit in with the floor layout and continuity of the property – an eight- or nine-room “rabbit warren” won’t help
- Location: This is always important especially if the property is located near a railway station, schools or shops
- Square meterage: The bigger the better when it comes to property size
- Garage, carport or off street parking: This is particularly important if the property is in the inner city where parking is at a premium
- Granny or “Fonzie” flats: This remains a popular trend especially with the potential for doubling your rental return