The Value of a Valuation

Posted on December 2, 2008 by | 13 Comments

Patrick Brady AAPI, MRICS, Dip. Ed OPINION
by Patrick Brady AAPI, MRICS, Dip. Ed
Certified Practising Valuer No. 1277
Director WBP Property Group


 


 




Many people know the basics of what can impact the value of their property – overhead power lines and busy roads versus sea/tree views and a short stroll to the local coffee shop. To gain a better idea of how to improve the value of your property, it is worthwhile taking a look at what a professional valuer looks for when inspecting a property and how they arrive at the valuation figure.


The field of property valuations is often described as an art and not a science, as it takes into consideration so many tangible and intangible aspects of a property and its surrounds. Valuations are a professional opinion based on available evidence; valuers do not set new benchmarks. They must be guided by what has sold recently, that is, within the past three to six months.


The valuation process starts with a physical inspection of the property. The valuer walks around and through the property taking measurements and note of the number and type of rooms, fixtures and fittings, and improvements. The valuer then employs three methods to further analyse the property in order to come up with a value range: direct comparison, summation, and capitalisation of net income methods.


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13 Comments

  • http:// says:

    Readers may like to check out this earlier Blog article where a valuer scored an honourable mention: Neighbours “Impaled” By Home Ownership Crisis

  • I note that well-known estate agent Ian Reid appeared on Today Tonight on 2 December, 2008 and stated that every vendor should obtain an independent valuation and then determine a price range based on the valuation when selling.

    Perhaps estate agents are starting to realise that determining “current market value” by using an independent and qualified valuer is preferable to relying on an estate agent who has an interest in the sale, and is therefore in a position of conflicting interests.

  • http:// says:

    I’ve noticed that the ‘buyer inquiry range’ has risen closer to the actual reserve amount as of the past couple of months. The amount of time I wasted going to auctions that were completely out of my league is astonishing.

  • Hi Austin,

    The first thing to remember about estate agent “appraisals” (they don’t call them valuations because they’re prohibited from giving valuations) is that they are nothing more than a marketing tool at best and a deception tool at worst.

    The estate agent is ALWAYS in a position of conflicting interests when offering an opinion as to price or value – remember the estate agent becomes a part owner of the property when the Exclusive Sale Authority has been signed.

    We always advise vendor clients to obtain a formal written valuation from an accredited valuer before making the final decision to sell.  This is because the valuation may reveal that the current market will not meet the vendor’s expectations, and the sale should be postponed until the market improves (can you imagine estate agent ever telling a vendor to postpone the sale until the market improves?).

    The valuation can then be used to determine both the price range, and the sale price.  I have written at length about this, so for more information CLICK HERE.

  • Austin says:

    By the way, have you checked this story out re: newspaper kickbacks? The link is in my name.

  • Hi Austin,

    Newspaper kickbacks never went away, they simply ducked beneath the surface. Now, instead of getting cash rebates, estate agents are rewarded by having their logos displayed in return for pushing clients’ funds in the direction of print advertisers.

    Imagine how much better off consumers would be if estate agents lost control of advertising budgets as well as valuations.

  • Chris says:

    @ Peter – It would be really helpful indeed if vendors were to present such valuation when selling the house, together with all the inspection reports. I think that no buyer would mind even paying for that information (I mean if it was included in the house price). This is especially important for houses sold at auctions because making 5 buyers spend money inspecting the same house is may be good for building inspectors’ businesses but otherwise doesn’t make sense.

    @Austin – I read the story re newspaper kickbacks, loved the “www.pissedoffrealestateagents.com.au” part.

  • Hi Chris,

    When my firm sells real estate we simply tell purchasers that our vendor client has obtained a formal valuation, and that the price range is always set 5% below and 5% above the valuation.  This allows the purchaser to work out exactly what the valuation is, while the range allows for “tolerances”.

    We have found that purchasers will make their first offer within the range, and then market forces take over as the final sale price is negotiated between the vendor and purchaser(s).

    Only a few purchasers ever request to actually view the valuation.  If they do, we seek the vendor’s permission to do so (because it’s the vendor’s document) but the vendor invariably consents.

    The only problem with the purchaser having access to the valuation is that the valuation is prepared for the person who commissions it.  In other words, a disclaimer in the valuation will point out that no-one but the person for whom it is prepared is entitled to rely on it or to take the valuer to task over it.  So basically, while sighting the valuation may be of interest to the purchaser, the only safe way for the purchaser to rely personally on a valuation is to obtain their own.

    It’s the same with most certificates and reports – the person or business that prepares them will only be responsible to the person who pays for them.

  • http:// says:

    It is very rare that a valuation by the bank, for the purpose lending to the purchaser, is any different to the contract price. All the vaulation means is that the property is not valued less than the contract price. You would need to commission a private valuation to see if the property is worth more.

  • Hi Kris,

    When banks have a valuation done it is often what is known as a “kerbside”, where the assessor stands at the kerb and looks at the house to see if it appears to be good enough to secure the loan.

    Whenever a client tells us that they already have a bank valuation, we always advise them that the bank valuation is conducted for the bank’s purposes, and that these may differ from the client’s purposes.

    I agree with you when you say that the only way to find out the true current market value of a property is commission your own valuation.

  • http:// says:

    I recently came across your blog and have been reading along. I thought I would leave my first comment. I don’t know what to say except that I have enjoyed reading. Nice blog. I will keep visiting this blog very often.

    Betty

  • http:// says:

    I enjoyed the article on the value of a valuation. I recently entered into a contract to buy a property off market from a relation. By engaging a valuer instead of accepting the agents opinions as provided by my cousin, has saved me thousands. The report provided sales evidence in the general area, that my cousin drove past and compared to his property. For a minimal outlay I have purchased a property at market level instead of over market.

  • Paul Butler says:

    A valuation is only as good as the experience of the valuer doing the job. I have seen a high number of instances where valuers are performing work well outside their area of experience, whether it be by location, price bracket and sector. Additionally in a market that we are facing today their is a distinct lack of reliable evidence with which to compare a subject property with, and as such can contain a significant margin of error. As a valuer and a commercial agent I regularly advise other valuers of market trends in my patch, and am sometimes astounded by the results that are formulated. So like any other service do your research well before appointing just any valuer.

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