When you’re looking to purchase a property, there’s a lot of things to get organised. Building inspections, pest reports and let’s not forget the home loan. But one very important thing to consider when you’re looking to purchase a new home is the valuation, particularly if you’re going to buy at auction. So how is a property’s value determined? This article looks at valuations and how independent valuers to arrive at that all important figure.
What is a valuation used for?
Whenever you want to borrow money to purchase a property, the lender will use a professional valuer to give them an independent assessment of the property’s actual worth. This is necessary for the lender to confirm that the property represents adequate security for its loan. The lender will then use this valuation to determine how much money they are prepared to lend you to purchase the property. Lenders always conduct a professional valuation, even if you have already obtained one yourself, as it is important that their valuation be independent and unbiased.
Valuations are also important if you are trying to assess the amount of equity you have in your home. With refinancing, equity can be used to make other purchases, like investment properties, stocks and shares, home improvements and so on. If you’d like to access the equity in your home, call us for a chat.
Why are valuations so important?
A valuation determines how much money you can borrow. Both real estate agents and vendors can sometimes be unrealistic when setting an asking price for a property, so their price may not reflect the actual value placed on the property by the lender’s valuation expert.
That’s why some kind of valuation is important if you are considering purchasing a property at auction, to help you set your spending limit and avoid overpaying. If you pay too much for a property, there may be a gap between what you have agreed to pay and what you can actually borrow.
To obtain a valuation yourself, you can employ a professional valuer for around $300 depending on the size and location of the property. Alternatively, as your mortgage broker we may have access to similar information as a professional valuer, so you can ask us to help you establish an approximate value of the property you wish to purchase.
What methods do professional valuers use?
There are two main methods professional valuers use to make a valuation. The first is called the direct comparison method. Using this method, valuers research recent sales of similar properties in your area within the last six months and make a comparison of your property with them. The 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 the properties.
The second method of arriving at an accurate valuation of your property is called the summation method. This method is a formula which adds the value of the land to the value of the improvements on the land – such as a house, pool and garage for example. Land value takes into account things like size, shape, location, views and surrounding infrastructure. The value of the improvements takes into account things like age, style, architectural features and overall appearance.
Most professional property valuation companies use a combination of these two methods.
What’s involved with the valuation process?
For the first step in the process, the valuations company will send an assessor to inspect the property. This inspection should take only 20 – 30 minutes at most.
Your property valuer will then undertake extensive background research on your local property market. Valuers have access to software and market data which allows them to compare the sales data of properties like yours over the past six months.
After the research is complete, the property valuer will produce a written report – usually within 48 hours of making the inspection. Usually professional property valuations are commissioned by the lender, so you may never see the valuation report unless you organise one yourself.
For more information about property valuations, talk to us today. As your mortgage broker we can often access market data that will help you to make 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. Chat to us today.