What you should know about property valuations

Property evaluations are a critical component of real estate investment. And because their results are quite essential, here is what you should know about property valuations.

In the first instance, it is important to appreciate that valuations are carried out by people. As such it is not an exact science with predetermined factors. Therefore the determinations made by valuers as to fair market value will be subjective to some degree. The valuer is also legally liable if they over price a property and the bank subsequently loses money on the loan. Hence valuers tend to be quite conservative with their estimates.

Secondly, a property valuation is not a real estate appraisal. Although most real estate agents are quite professional, a significant number will alter estimates upwards to meet your expectations. Furthermore, they realise that investors and home owners want to achieve a good price for their property. Thus they will tell you what you want to hear, as they want to secure the listing to sell your property. After all they are in direct competition with other agents for your business. Independent valuations by contrast, are carried out and performed by valuers who are void of any vested interest. In the end whatever value they attach to a property has no bearing whatsoever with regards to their remuneration. A valuers single job is to value a property.

The valuation process is by no means a generic one. This means there is no one size fits all solution. Therefore as a property investor you need to have at least some minute understanding of the valuation exercise. Additionally you need to be aware of how the valuation is carried out. And how this can subsequently have a direct impact on the end result.

Full valuation

As the name suggests, a full valuation incorporates an extensive and comprehensive internal and external examination of the property. As well as researching comparable sales and the overall local property market.

Restricted valution

Drive-by or kerbside valuations are some of the other terms that restricted valuations go by. They usually include an external inspection of the premises, as well as market research. There is quite an inherent danger to a valuation that does not involve the valuer carrying out an internal assessment of the property.

Comparable sales in the area is one of the primary means a valuer utilises to ascertain an estimate for your property. Similarities in type and size are some of the comparable aspects. However, in certain instances comparable sales can be difficult to obtain. For example in remote areas, or for structures with unique features and styling. As such it makes the task of issuing a valuation quite difficult for the the valuer. In other words, the less comparable stock there is to use as a yardstick, the more likely valuers will have to rely on their own subjective interpretation of what your property is worth.

Is it of great importance that property investors participate and assist their valuer in the assessment exercise. It is also advisable to be present throughout the valuation to answer any pertinent questions relating to the property. However, be careful so as to not influence or tamper with the independent process. Lastly, provide any information such as improvements undertaken since purchase as these have a bearing on the judgement rendered by the valuer.

Getting the best valuation outcome

Being pro-active is essential to achieving the best possible outcome by;

  • Supplying a well researched list of comparable sales.
  • Getting your own valuation and requesting a review if you’re not comfortable with the valuation.
  • Requesting to see the valuation report so as to understand how the valuation was carried out.
  • Carry out your own quest to have a better understanding of the local property market.

Knowlesge gives you power and nothing equips you better in the property investment space than well-rounded knowledge.

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