If you’re a property owner, at some point you’ll probably need to know the its value. The different services available to you may be a bit confusing, and finding an accurate valuation service can be overwhelming.
Knowing the value of your property can serve you in many ways, the most obvious being that it allows you to make an informed financial decision regarding your future. Valuation services in TAS are often used for pre-purchase/pre-sale advice, insurance or taxation purposes, settlement negotiations, and more.
Certified valuation reports are valid for litigation and legislative purposes, as the document meets all of the relevant regulatory and legal requirements. There are many different scenarios where a registered valuation is needed.
Real estate appraisals, online property valuations, and registered property valuations are all distinct from each other. They have different standards of accuracy and legitimacy.
Your circumstances will determine the type of valuation service you need and the cost you’re likely to pay.
The different types of valuation services
You may have noticed a variety of options when it comes to choosing a valuation service. As not all of these services are the same, it’s important to know exactly what you’re getting into.
Independent & Registered Valuations
The most reliable and accurate type of property valuation. A service performed by a qualified valuer with the necessary education, training, and experience.
Valuers are registered with the Australian Property Institute and adhere to International Valuation Standards.
A combination of trustworthy methods is followed to help valuers reach a definitive and final value. The report is prepared according to strict regulatory and legislative requirements.
Online Property Valuations
There is a wide range of sites offering property valuation estimates online, often as a free service. These sites use automated valuation models (AMVs) to calculate an estimated value.
Such online tools use publicly available data from sources such as councils, state governments and estate agent records to assist the calculation. As these are not entirely reliable, it's difficult to know which real estate website has the most accurate estimates.
Online services may be a useful guide, but the accuracy can vary and should not be relied upon as a final number. Look at them as price estimates rather than as property valuations.
Real Estate Appraisal
A real estate appraisal is a valuation service performed by a real estate agent who is helping sell the house. As they stand to gain something from the transaction, there is an inherent bias.
Realtors will compare your property with others in the area by looking at recent sales data and features in your home to give you an idea of how much your property could sell for.
While the agent will be well-versed in real estate, they are unlikely to hold the same qualifications as a registered valuer. Real estate appraisals are very helpful, but cannot be used as an official report for legislative purposes.
Bank Valuation
A bank valuation is an examination of a property’s worth as decided by a financial lender. The valuation is used to determine the outcome of a loan application.
Bank valuations are often conservative in their assessment as the final value impacts the size of the loan the bank is willing to give out.
What methodologies do property valuers follow?
Registered valuers maintain a high standard of accuracy by using a few different reputable calculation methods. Experts are well-versed in each of these and will choose a primary method that suits the purpose of the report. Secondary methods help the valuer refine the final calculation.
The most commonly used valuation methods are:
Direct Comparison Approach
Valuers examine the sales data of nearby properties with similar characteristics. Most commonly used for land and residential buildings, this data is used to reach a foundational value.
They will then make the necessary adjustments to the final value based on the key differences between the properties.
Summation Approach
This involves arriving at a property’s value by considering what it would cost to replace it with a comparable property in an arms-length transaction. The replacement property would have to be in a similar condition.
Also known as the cost replacement method, the valuer will consider improvements made as well as the depreciation rate when determining a final value.
Income Capitalisation Approach
An approach reserved for properties that produce income, i.e. a commercial property. The valuer will consider the annual income of the property on the assumption that costs and income remain the same for each year.
A valuer will calculate the Net Operating Income of the property and divide it by the Capitalisation Rate. The income approach is most relevant for buildings owned by landlords with the aim of achieving profit.
Summary
In conclusion, an independent property valuation from a registered firm is the most accurate and reliable valuation service available in Australia.
There are also a few other ways to get an estimation of your property’s value. While these services can be useful, you should never see them as a replacement for a registered valuation.
Certified property valuers maintain a consistent standard of accuracy by using tried and tested calculation methods. Experts also adhere to the regulatory standards, guidelines, and requirements set out by the relevant property boards.
As registered valuations are recognised in courts and legal proceedings, they are far more valuable than price estimations and real estate appraisals.
For more information on the accuracy of valuation reports or if you have any related queries, speak to one of our qualified experts today.
