How do property valuers make valuations?

When you find a property you want to purchase, there are a lot of things to consider – from building inspections and pest reports to securing a loan.

One other very important thing to consider is the valuation, particularly if you’re going to buy at auction. So how is a property’s value determined?

What is a valuation used for?

Whenever you want to borrow money to purchase a property, the lender will use a professional valuer to give them an independent assessment of the property’s worth. This valuation helps to determine how much money the lender is prepared to lend you.

Valuations are also important if you want to assess the equity you have in your home. With refinancing, equity can be used to make other purchases like investment properties, shares and home improvements.

Why are valuations so important?

A valuation is important if you are considering purchasing at auction as it can help you set your spending limit and avoid overpaying. If you bid too much for a property, there may be a gap between what you have agreed to pay and what you can borrow.

To get a valuation, you can employ an independent valuer, or source one through your lender.

Alternatively, we may have access to similar information as a professional valuer, so you can ask us to help you establish an approximate value of the property you wish to purchase.

What methods do professional valuers use?

There are two main methods professional valuers use to make a valuation.

1. Direct comparison:

• Valuers research recent sales of similar properties in your area within the last six months.

• Use the comparison properties as a valuation guide.

• Make adjustments up or down if there are any material differences between the properties.

2. Summation method:

• Valuers determine the land value based on considerations such as size, shape, location, views and surrounding infrastructure.

• Determine the value of improvements on the land such as a house, considering the age, style, architectural features and overall appearance.

• Add the two values together to arrive at an accurate valuation.

Most professional property valuation companies use a combination of these two methods.

What’s involved with the valuation process?

Firstly, the valuations company will send an assessor to inspect the property.

Your property valuer will then undertake extensive background research on your local property market. Valuers have access to software and market data which allows them to compare the sales data of similar properties over the past six months.

Finally, the property valuer will produce a written report – usually within 48 hours of making the inspection.

Next steps

If you’re ready to start your hunt for a new home or investment property, or if you’d like to know more about property valuations, get in touch with us today.