We know that property valuation can feel like a bit of a mystery at times. With all the different figures thrown around during buying and selling processes, it’s understandable that you might even start to think of it a bit like crystal ball gazing.
To take some of the mystery out of it, we’ve put together this quick guide to the basics of property valuation. Once you have a better idea of the different types of valuations out there, how they’re calculated and what they mean, you’ll be better placed to get the most out of these important tools in your property buying and selling arsenal.
What is a valuation?
Simply put, a valuation places a monetary value on a property – that is, it tells you how much it might sell for. This is calculated based on data that includes a wide range of factors such as the condition of the property, previous sale prices of similar properties, and projections about the market you’re buying or selling in, such as whether sale prices have recently been increasing, decreasing or plateauing.
Valuations come in the form of reports that give detailed information about the factors that have gone into producing the estimated sale price of the property.
What are valuations used for?
Valuations are used in both buying and selling a property. For buyers, valuations are usually required by banks before you can secure a loan to purchase a property. For sellers, valuations are important for knowing how much you should be asking for your property. For both buyers and sellers, valuations are the basis of informed negotiations.
What are the different types of valuations?
There are a number of different types of property valuations that are used in different phases of the buying and selling process. Each type has its own purpose and contribution.
Automated price estimates are online tools offered by lenders to give buyers and sellers an initial idea of how much the bank valuation might be. These services are useful starting points when you’re dipping your toes in the water.
Bank valuations are calculated by lenders to inform their decisions about size and conditions of property loans. Because these valuations are concerned about managing the risk of the buyer being unable to repay the loan, they are usually conservative estimates.
Selling agent appraisals are calculated to balance attracting sellers to use the agent’s services and maintaining their reputation as a reputable agent. For this reason, they are less conservative than bank valuations, more highly valuing optimistic market projections and property features.
Local council valuations are the property values that are included on the local municipal rates bill that property owners receive annually. This property valuation is used to calculate how much property owners owe for using local infrastructure and services.
Professional valuations are detailed valuations made by skilled professionals that take into account the full detailed range of factors that will affect a property’s sale price. This is a service that is privately offered by professionals, which can support buyers and sellers to wade through the large amounts of information out there from different sources.
The ultimate property sale price might be similar to these figures, or it might differ significantly. Regardless of the outcome, valuations play an important part when buying or selling.