How to think like a Property Valuer.
Property valuation entails market analysis and comparison, combining a number of different methods and examining the relevant sales data. Here, we’ve cut it down to the very basics, but for a more detailed explanation click here to download our free Property Valuation Toolkit.
1. Do your research – This one’s important. Find out absolutely everything you can about the suburb the property is in. Property valuers are entering five or six properties a day, so they know their suburbs. Talk to neighbours and estate agents, attend auctions and check council records. Everything helps.
2. Compare apples with apples – Find properties in the area that have recently sold that are as similar as possible to compare with. You can check the “sold” section on realestate.com.au for houses in your suburb. There is a delay before these sold prices become available as the price can’t be released until the sale of the property has gone unconditional.
3. Ignore your emotions – It’s easy to think with your heart and not your head. But this is business! Be objective and realistic.
Property valuers are independent and should have no tie to the property. The purchase of any property needs to be a business decision, but it’s easy for a purchaser to quickly become attached to a property. Property valuers often conduct valuations for property investors who will not pay one cent over the valuation figure. These investors are making a business decision and this is an important investment. However, there are times when prospective home owners will pay more than the property valuation figure because this is their dream home and they have to have it. But at least they know exactly where they stand and they are making an informed decision (even if not the best financial investment). They also have a guide as to what the bank will value the property at, and how much they might be able to lend.
4. Inspect the property – This sounds a bit obvious, but be sure to be thorough. Comprehensively scrutinize every inch of the house and yard. Is the deck rotting in one corner? Is the en suite tap a bit leaky? Write it all down and take it into consideration.
Property valuers are not building inspectors and cannot confirm the structural soundness of a building. A valuer will note obvious building flaws in their report, but a building and pest inspection is essential with any property purchase, regardless of how new the property is. Engaging a professional building/pest inspector should not stop a prospective purchaser from comprehensively scrutinising every inch of the house and yard prior to engaging the professionals. A survey commissioned by St George found that most Australians spend longer inspecting a new car than they do their new house.
By conducting their own thorough inspection first, the purchaser can save on costs and eliminate a potential property for purchase before paying for experts like building/pest inspectors and property valuers.
5. Look out for over the top renovations – Was that all Italian marble, solid gold fittings and crystal chandelier bathroom renovation really necessary? It was certainly expensive, but if it doesn’t complement the rest of the house, it probably didn’t add any value to the property – unless you strip it down and sell it for parts.
Check to see whether the property has been overcapitalised. Is it the most expensive house in the suburb? Property valuers take into consideration the highest sale of property in the location. You may be willing to pay the asking price, but will it be valued at contract price by the bank? If sold down the track will someone else pay the commensurate price? Are other houses in the suburb of similar quality?
The property valuer must find confirmed sales evidence to support his figure. If the property has been overcapitalised, the evidence won’t be there.
6. Divide it up – when you’re looking at the property always break it into sections; land, house and ancillaries and account for them individually.
The property valuer looks at the ‘site value’ of the land, as applied by the State Valuation Service (in Queensland). This was previously known as the Unimproved Land Value. The valuer then apportions a relevant rate per square metre on the dwelling (based on the quality of fixtures and features). It is the depreciated replacement cost of improvements which is added to the value of the land. The property valuer then apportions a value on the ancillary improvements (pool, landscaping, fencing, sheds etc). The sum total is analysed in association with comparing the property with confirmed sales in the area.
7. Location, setting, position – Take in the surroundings, view, proximity to shops and schools. Check for flooding and if any neighbouring properties are earmarked for development.
The property might be in a good suburb, but there are many positional factors which can affect its value and capital growth potential. Take in the surroundings. Is it on a busy road or close to power lines? Some mortgage insurers and therefore lenders won’t lend for properties within a certain distance of large power lines or towers. Is it overlooking a shopping centre? It’s good to be close to shops and schools, but there can be such a thing as ‘too close’.
Be sure to check development applications for the area. Check if the house next door is due to be knocked down to make way for a high-rise apartment block that will look into your house and block your sunlight or view.
8. Ignore listings – Realistically an estate agent can list a house for whatever price they like; so focus on what houses in the area have sold for, rather than their listed price.
The price for which nearby properties have been listed for sale is not taken into consideration by property valuers. Realistically property owners and real estate agents can list a house for whatever price they like; so focus on what houses in the area have sold for, rather than their listed price. Remember, the listed sale price for properties on the market is irrelevant. Property valuers can only take into consideration the confirmed sale price after settlement has taken place.
9. How do the locals like it – Take a look at the surrounding neighbourhood. If everyone else on the street has a lock up garage and your property only has a car port, it could be unfavourable for a potential buyer.
10. Ask for help – An independent property valuer is legally qualified to combine all these steps and provide a formal valuation of your property. It’s the best way to ensure peace of mind when buying or selling a home.
Consulting a team of specialists will ensure you minimise your risk and maximise your profit when investing in property: a building and pest inspector, a solicitor for conveyancing and a good accountant are an essential part of the process. If the property is an investment, ensure you engage a quantity surveyor for a tax depreciation schedule to minimise your tax.
All of these steps will provide a good indication of a property’s worth. Some properties are quite easy to establish the value. Some suburbs have the identical houses on the identical lots at the identical price. The hardest part is getting access to the necessary sales database of recent sales evidence to use as a comparison against your subject property. It’s the more unusual properties (large blocks, exceptional views, flood prone areas or sub division potential) which become more challenging to value. This is where an independent property valuer can combine all the steps above, provide a formal valuation of the property and provide the confidence to take the next step.
If you just don’t have the time (or inclination) to do the work yourself call us on 1300 505 425 or click here to Request a Quote and we’ll get back to you in no time.
If you have any questions or if we can provide any further information give us a call. We’d love to help you.Share