Property valuation is an essential aspect of the buying and selling process, but it can often seem mysterious and complex. To demystify this process, let’s explore the basics of property valuation to gain a better understanding of the different types of valuations available, how they are calculated, and their significance in the real estate market.
Valuation, in simple terms, is the determination of the monetary value of a property. It provides an estimate of how much a property could sell for based on various factors. These factors include the property’s condition, location, aspect, features, recent sale prices of similar properties, and market projections that consider whether sale prices have been increasing, decreasing, or stabilizing.
Valuations are presented in the form of reports that offer detailed information on the factors considered in determining the estimated sale price of a property.
Valuations serve different purposes for buyers and sellers alike. For buyers, valuations are typically required by banks before securing a loan for purchasing a property. For sellers, valuations are crucial in determining an appropriate asking price. Both buyers and sellers can use valuations as a basis for informed negotiations.
Various types of valuations are used at different stages of the buying and selling process. Let’s explore them:
Automated Price Estimates
Online tools are provided by lenders to offer initial indications of a property’s potential bank valuation. These estimates are helpful for getting a preliminary idea of the property’s value. You often see on real estate websites the ability to enter a property address to receive an appraisal, or evaluation of that property. This is an example of an automated price estimate.
Bank Valuations
Calculated by lenders to assess the maximum size and conditions of property loans. These valuations tend to be conservative, as lenders aim to manage the risk of loan repayment. Banks must make sure that the value of the home exceeds the amount of the loan being offered. Bank valuations are more focused on the financial aspect and may not capture the full market value of the property.
Selling Agent Appraisals
Conducted by real estate agents to attract sellers and maintain their reputation. These appraisals are typically more optimistic than bank valuations, as agents consider market projections and property features to present a higher value. They typically involve the real estate agent doing a physical inspection of the property.
Local Council Valuations
The property values are mentioned in the local municipal rates bill that property owners receive annually. These valuations determine the amount property owners will need to pay for water, sewerage, rubbish collection etc. Often only the land valuation is used for this purpose.
Professional Valuations
Detailed valuations are conducted by skilled professionals who consider a comprehensive range of factors affecting a potential property’s sale price. Private professionals offer this service to assist buyers and sellers in navigating the abundance of information from various sources.
The final sale price of a property may align with the valuations or vary significantly. Nonetheless, valuations play a crucial role in facilitating informed decision-making when buying or selling a property.
At the end of a sale, the house value is what the purchaser was willing to pay for it, but that still might not change the valuations provided by the means above.
If you would like a free appraisal of your property, get in touch.