Real Estate Valuations: How Do Professionals Value Property
When you own any kind of real estate, you would likely be concerned about its value. This is especially true if you own property as a real estate investor or you are in the market for a new home. The best and most efficient way to accurately learn your property’s value is to order a Sydney real estate valuation.
Before you hire a real estate valuer, here are a few things you may want to know about their profession, how they complete a valuation and a few ways you could use their report.
Real estate valuation and appraisal – is there a difference?
Most property owners will be familiar with appraisals made by real estate agents. You may have received a flyer or business card promoting their free appraisal services. This property appraisal is very different from a real estate valuation. The first difference is who is inspecting your property.
A real estate agent performs an appraisal and does not require a substantial amount of education or experience to do so. A valuation will be conducted by a real estate valuer. If you are valuing a house, this will be a residential property valuer who would have several qualifications. These include:
- A university degree or a certificate from an accredited course
- A professional membership with organisations such as the Australian Property Institute
- An accreditation as a Certified Practising Valuer (CPV)
- Street type
- Added training from the API
- A minimum of two years of active valuing experience
Another difference between an appraisal and a valuation is the report. A real estate agent normally does not provide a written document of value. With a valuation, you receive a formal sworn document that can be used in official circumstances. For example, a valuer can provide a property valuation for tax purposes.
How to do real estate valuation?
The main purpose of a real estate valuation is to create an accurate report of a property’s current fair market value. It is a thorough process that involves heavy amounts of research, analysis, and consideration. How a valuer will approach this process will depend on the requirements of the report.
There are three common approaches to valuations. These are:
- Direct comparison approach
- Income approach and
- Cost approach
The direct comparison approach would likely be the primary method of valuation. When using this method, a valuer finds properties that are comparable to your own in almost every way. They must have similar features, the same type of property and be located in roughly the same area. The valuer then uses their details and recent sales prices to determine house value.
When the subject being valued is a rental or investment property, then a valuer could use the income approach as a secondary valuation method. This will also use comparable properties. A valuer finds the Capitalisation Rate (Cap Rate) of property and the Net Operating Income (NOI) and then uses these figures to calculate value. This resulting value, as well as the individual information from each comparable, will prove useful to the investor when considering new investments.
The other popular approach to valuations is the cost approach. It is a core aspect of real estate valuation theory. This can be used as either a primary or secondary method of valuation depending on the purpose of the report. Simply put, this method is a thorough and complete investigation into the property. Every internal and external factor that influences the property’s value is considered and analysed by the valuer. Their impact on value is then determined and summed together to equal a final property value figure. The factors a valuer considers for this method may include
- The location of the property
- Approximate age/ year the building was constructed
- The size of the lot and area of the house itself
- The number of bedrooms, bathrooms, and garage/parking spaces
- Architecture, design, and layout of the home
- Site orientation
- Condition of the local economy
Real estate valuation and financing
As previously stated, a valuation report can be used for several purposes. Most circumstances that require a property valuation involve personal and business finances. This includes such things as the purchase of a house, refinancing and applying for insurance.
The value that is reported in the valuation can have a major impact on how much you receive as a loan, how much you pay in premiums and if the report were for taxation, it would dictate how much you owe. Thus, it is vital that the report has been conducted correctly and that the level of work from the valuer meets a high standard.
Real estate valuation and strategy
A valuation is also a great tool for businesses, with many valuers offering services such as financial reporting, business, and internal accounting valuations. Valuation reports are objective and comprehensive analyses of value. This makes them an incredible resource when forming a strategy for future business endeavours and investments.
For homeowners, home-buyers, flippers, investors etc., a real estate valuation can help with both buying and selling property. It can also aid in preparing a home for sale to help boost your profits from a sale. The report can also be used in the negotiation of an open market sale. The data in the report can support and add extra negotiation power to either the buyer or seller.
Find an expert real estate valuer today!
There are many real estate valuers available in Sydney. When looking for the right valuer, it is always best to choose a local valuer that has plenty of experience. If you would like to connect with a local valuer in your area with expert knowledge, contact our team today. We can help you connect with the right specialist for your needs.