The one fact about property valuation we simply can’t deny is that it can make life so much easier. It can come in handy in a number of situations and has so many benefits. These include:
- Making the buying and selling process easier
- Getting sufficient insurance on your home at a fair price
- Managing your finances better
- Planning more worthwhile renovations and improvements
A Certified Practicing Valuer in Melbourne can offer guidance on what a valuation can do for your situation. They can also make sure the report is completed in a way that best helps you.
Now that we’re aware that a property valuation can make your life easier, let’s explore the reasons why it is so important.
The difference between a property valuation and an appraisal
Now you may have been tempted to simply make do with an appraisal from a real estate agent. It makes sense, after all it is a free service. However, an appraisal only provides a general estimate of the property's sales price. This makes its use quite limited.
With a university education paired with professional regulation, Certified Practicing Valuers (CPVs) are qualified to prepare valuation reports for important matters. These include:
- A sale or transferring ownership
- Tax reporting
- Mediation or litigation processes
Assessments are done impartially and the reports prepared are fully comprehensive. If need be, valuers can also stand as credible witnesses and attest to the value of a property in a court of law.
The many property valuation methods
One of the aspects that lend to a valuation's importance is the method behind it. Versus an appraisal that is based on an individual agent's personal experience and knowledge, a valuation is based on facts found via careful investigation.
This investigation may be completed using a variety of methods. There are three main methods of valuation that are frequently used. They are as follows:
- The Summation Approach
- The Replacement Cost Approach
- The Market/Sales Comparison Approach
How does the Summation Approach work?
The summation approach is one of the first steps that valuers take to determine how much your property is worth. The value of your plot of land and any built structures on it will be calculated. This includes:
- The actual house or apartment
- Garages
- Swimming pools
- Wooden decks
- Sheds/workshops
- Greenhouses
There is a long list of structures that are included in a property valuation.
When valuers use this method, the location, size, layout, surrounding landscape/ natural environment and nearby amenities will all play a big role.
What is the Market/Sales Comparison Approach?
The market approach compares the sale price of similar properties. Unlike the method we just discussed, the sales comparison is more of an estimate than a precise calculation. It is often used for low-risk transactions or loan valuations.
In order to maintain precision, another method of valuation can be used alongside the market comparison approach.
Is the Income/Capitalisation Approach accurate?
The income approach is usually used to value commercial properties. The income it has the potential to generate in the future will determine its current market value.
Valuers will assess the property’s Net Operating Income (NOI) to determine how profitable your investment can be. Their analysis will include the expenses like taxes and utilities. After the capitalisation rate (a measure of profitability) is confirmed, the property will be valued accordingly.
Is it worth it to get a property valuation?
A property valuation is definitely worthwhile. One prepared impartially will give you the resources to make smarter choices.
Before the sale of a property, it will make both participants aware of a reasonable sale and purchase price. This will also allow investors to choose a fruitful property that will give them a good return on investment.
Making uninformed decisions and buying without any knowledge of the property could lead to empty pockets. This could be all the more complicated if this is a Self-Managed Superannuation Fund investment property. As any damage and underlying problems could go undiscovered at the time of purchase, they may worsen significantly before coming to light.
An independent inspection and report from a CPV will also come in handy for litigation. This includes a divorce settlement and for probate to be granted for a deceased estate to be shared fairly.
There are plenty more reasons why a property valuation will be worthwhile. An expert valuer will be able to give you more insight into the process and give you appropriate advice.
Summary
The importance of a property valuation cannot be stressed enough. When you think of it as an investment before your actual property investment, it will open your eyes to how it can actually benefit you.
Get in touch with our experts for more information on the valuation process. They’ll be delighted to guide you through the entire process.
