Property Valuation

A property valuation is carried out for many purposes. This includes say market value, investment value (based on investors requirements) insurance value, etc. They may all constitute different figures.

If you ask Valuers for a Property Valuation without specific clarification they will automatically assume you mean Market Value. This is as defined below:

Current Market Value means the estimated amount for which an asset should exchange on the date of valuation between a willing buyer and a willing seller in an arms length transaction after proper marketing, wherein the parties had each acted knowledgeably, prudently and without compulsion.

However this may not be what you require and may not necessarily constitute a good investment.

When a financier instructs a Valuer to complete a property valuation for mortgage purposes they may lay down criteria or assumptions that the Valuer is to adhere to. This may relate to assumed realisation periods or differing conditions and may exclude certain items given in with the sale such as plant etc as defined. They may request an alternate use valuation assumption on a specialised property.

A special purpose purchaser may view the property as being worth more to him or her, for reasons that the valuer may need to exclude.

This often leads to a misunderstanding and an unfair judgement on the Valuers conclusions. Valuation is often a very misunderstood profession, due to a lack of understanding of the Valuers responsibilities and court case precedents.

Therefore be prepared for the fact that a property valuation for mortgage purposes may differ to how you view the worth of the property.

Valuation Methodologies

There are several different approaches to property valuation and they need to be understood when reading a valuation report. Different methods & approaches are applied to different classes of property.

Which ever approach is utilised it is important to remember at all time that these valuations are based on the analysis of recent comparable sales. They are constructed by applying a deduced basis from the market evidence available to the Valuer. A sales analysis is the complete mathematic reverse of a valuation.

In other words the Valuer breaks down the purchase price of comparable properties into components or ratios. These components, ratios or discount rates are applied (with adjustments for comparability) when the Valuer constructs his valuation.

Selecting a Valuer

In assessing a Valuers experience & qualifications to carry out the tasks requested, consumers have access to a number of sources in locating a suitable Valuer.

In some States Valuers need to be registered to carry out a particular type of valuation. This can be checked at the respective Valuers Registration Board. Like any regulatory requirement Registration is no guarantee of competency, as is the case with any profession, but it is a start.

Specialised practitioners lists can be accessed via Valuers Institutes web sites. For example the NSW division of the Australian Property Institute can be accessed at www.nsw.api.org.au. On the home page click on “Find a Property Professional”.

One of our roles is to obtain quotes from a panel of Valuers known to us to be competent in their nominated field.

The other issue is the Valuer needs to be approved by the financier chosen. There is no point in seeking a property valuation from someone who is not on the panel of approved Valuers for that financier. However just because some valuers are not on a panel does not reflect on their competency.

Many Valuers are specialists and others are general practitioners. In other words some Valuers specialise in a specific type of property or range of properties.

Generally speaking those Valuers in regional areas, by geographic necessity, tend to cover a wider range of property. Local knowledge is important in any valuation process, particularly in relation to rural property.

Whilst many city or urban Valuers are quite capable of assessing rural residential or small lifestyle properties, they may not be so equipped to appraise larger rural production based holdings. The agricultural capacity of rural properties requires a good knowledge of agriculture. Quantifying soil types and livestock carrying capacities etc. requires considerable training & experience. Consequently dual qualifications and experience is common with these practitioners. Be warned, these people are few & far between.

When a Valuer is being considered, and being asked to quote, you are quite entitled to ask for a statement of experience in the particular property category. This should be done, and any limiting terms & conditions to be included in the report should be requested.

Be prepared in most cases, unless you have had prior dealings, to be asked to pay the fee up front.