How much is your property really worth?

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In Australia, market value is defined as the estimated amount for which a property would be exchanged on the date of valuation, between a willing buyer and a willing seller in an arms-length transaction, after property marketing wherein both parties act knowledgeably, prudently and without compulsion.

This definition has been widely interpreted. But as a guide, the following points definitely exist:

• The transaction must be between arms-length parties
• The buyers and sellers must not be under duress to sell nor compulsion to purchase
• The parties must be knowledgeable. They must be informed about the market and market conditions.

Valuation misconceptions
In the context of valuations, it is important to deal with some common misconceptions:
• Cost does not equal value. In the example of a new construction the combined sum of the land and buildings does not necessarily equal value. Many people overcapitalise in real estate and learn a hard lesson when they try to sell their property.
• Asking/selling price does not necessarily equal value. Many sellers pitch the price of their property above the market hoping to sell at a premium. When a real estate agent gives you an estimation of the worth of your property it is called an appraisal. This is distinctly different from a professional valuation because it not only takes into account comparable sales, but also undertakes an analysis of the features of the property and its attributes - providing a far more detailed analysis of the subject property.
• The market is constantly changing, and for a valuation to be relied on it must be no more than three months old.

Valuing your valuer
In Australia, the term valuer is used to describe an appropriately qualified and licensed person who can undertake a valuation. Generally speaking, a valuer can only become qualified after taking an appropriate tertiary qualification (usually a four-year Bachelor Degree in Property); undertaking two years of fully supervised experience; and sitting an oral exam in front of a group of peers. In the states of NSW, Queensland, South Australia and Western Australia, the state government also licenses the activities of valuers.
In conducting a valuation, the valuer interprets a range of data, mainly based on market evidence, as well as taking into consideration a range of attributes unique to the property. These may include: 

• Locational factors - is the property on a busy street?
• Does it have good vehicular access?
• Are the buildings in good condition, and if not how much will need to be spent on bringing them up to an acceptable standard?
• Is the property designed well?
• What level of accommodation does it offer?
• What is the standard of presentation and fit out?
• Other factors may relate to the property's zoning and use. Is this the highest and best use of the land?

Why bother with valuation?
Valuations are used for various purposes. The most common basis for a valuation is for rating and taxing purposes, usually required every two years. This allows your local government to assess your council rates based on the value of the property. These figures are also used by state governments for land tax calculations. 

In addition, banks and lenders require a valuation when a customer applies for mortgage finance. The lender will usually have an independent valuation carried out on the property to determine the value of their security equity in a property. 

Nearly every lender in Australia instructs the valuer to assess the property using the definition outlined above. Another common misconception is that a valuation for bank purposes is discounted in some way. This is not the case. 

Other forms of valuations include those used in property disputes such as matrimonial separation; insurance valuations; rental valuations when there is a dispute between landlord and tenants; and for resumption and compensation purposes when a government authority takes possession of a property. 

Recently we are seeing more buyers and sellers of property privately engaging a valuer to assist them in making property decisions. Vendors are using the valuation as a decision-making tool, particularly if they have had wide-ranging variances in appraisals conducted by agents. They are then able to assess whether an offer made is genuine, above or below where it should be. 

Alternatively, purchasers may also choose to engage a valuer to assist them when they are making an offer. In these days of tight lending rules, many just want the assurance that the price they pay will be supported by the bank when they have it valued. If you get a firm opinion from a valuer you should consider it, as it will be based on a close and educated knowledge of the local market.
Dealing with incorrect valuation

Valuations are not an exact science, rather an educated interpretation of the characteristic of the property and market conditions at a given point in time. Often a valuer is challenged on how he/she arrived at the figure. 

In most cases the point of difference will be the interpretation of market data. For example, on many occasions a vendor has based their own estimation of value based on the 'asking prices' in their neighbourhood. The valuer will only analyse actual sales of property where a transaction has actually occurred. 

A common question received by valuers from property owners or prospective property owners is "What if I believe the bank's valuation is incorrect?" A number of lenders, when extending mortgage funds, have drifted away from the use of full valuations and, in some cases, the figure they use may be based on a computer statistical model or a desktop assessment. 

This is not a current market valuation, as described above. In fact our research indicates that there can be up to 10-20% of variance in what a valuer would assess the property to be worth based on a full inspection. Typically, lenders do this to save the borrower upfront costs which, on a $600,000 property, would equate to a saving of approximately $200 in valuer fees. 

To determine this, ask your lender if a valuer actually inspected the property. Unless there is compelling market evidence of directly comparable sales that have not been picked up by the valuer's research, then the valuer is unlikely to change his/her opinion of value. Given that most lenders expect the valuer to have inspected and completed their report within 48 hours of instruction, they may sometimes miss some vital evidence. If you are aware of a directly comparable property that has sold, supply it to your lender or the valuer at the time he/she inspects your property.

Choosing your valuer
When choosing a valuer, the following is a handy checklist of questions you should ask:
• Does the valuer have intimate local knowledge of the suburb you are looking in?
• Is the valuer appropriately registered?
• Does the valuer hold 'Certified Practicing Valuer' status with the Australian Property Institute or is he/she appropriately accredited by the Royal Institute of Chartered Surveyors? (two peak industry bodies for valuers in Australia)
• Does the valuer have professional indemnity insurance of at least $5m?
• Is the valuer accredited with any lenders? (important for purchasers)
It is always important to engage your valuer formally and usually we would recommend it be done in writing. That way your instructions can be easily interpreted and relied upon.

Top Suburbs : leumeah , glendenning , torrensville , emerald , newcastle


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