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WHAT IS THE DIFFERENCE BETWEEN A PROPERTY VALUATION AND A PROPERTY APPRAISAL?

By Liam Worth

We are often asked whether there is a difference between a property valuation and a property appraisal.  The answer is yes, they both serve a different purpose and are equally as important to a homeowner.

Here is a look into the difference between the two and when you would consider getting either one.

What is a property valuation and when do I need one?

A property valuation is a detailed legally binding report of a property’s market value.  It is conducted by an accredited valuer who has completed formalised education and training. Valuations are required when a definitive value is needed such as working out family or partnership settlements, establishing the value of a deceased estate, or obtaining finance from a lender. In the case of lenders, they need to ensure the property is a suitable security for a loan and that the market value is enough to cover the mortgage if there was a forced sale.

How is the property valuation calculated?

To start with valuers will look at the most recent comparable sales in the area in terms of land attributes, improvements, location and planning controls to give them a ballpark figure. They will also visit the individual property and assess the following features.

  • Description of the property including the number of bedrooms and land size
  • Risk ratings for things like environmental risks as well as market risks
  • The condition of the property
  • The fixtures and fittings
  • The structure and condition of the building
  • The quality of the internal fit out and the property’s architectural style
  • Local council or planning restrictions
  • The aspect, topography and layout of the block
  • The property’s location and proximity to sought after amenities
  • Any issues uncovered in the inspection of the property or other searches conducted

Once they have all the information, the valuer will provide the client with a report within a few days after their visit.

Keep in mind in many cases the valuation report will be more conservative than a property appraisal with a real estate agent, because they don’t take into account how people’s emotions, market knowledge and other motivations might affect the final sale price.

When would I get a property valuation?

You would most likely get a property valuation when you apply for a home loan as most lenders require one prior to them giving you approval on your home loan. You would also get a property valuation when you are dealing with a family or partnership settlement, need to know the value for capital gains tax and in some instances and/ or you may require it for a building insurance policy.

What is a property appraisal and what do the agents look at?

A property appraisal is conducted by a real estate agent and is an estimated market value of your property in the current market. It is not a legally binding report, but it provides you with a good understanding of how much you could expect to sell your property for in the current market.

By virtue of the fact local real estate agents live and breathe the local market, they are specialists at answering the ‘how much is my property worth’ question and they do it by conducting a comparative market analysis and looking at similar properties that have sold in the last 90 days, along with current competition, wider market trends and the following features of your individual property:

  • Location
  • Building structure and condition
  • Size of the property
  • Number of bedrooms / bathrooms
  • Appearance of the property
  • Condition of the interior including fixture and fittings
  • Ease of access
  • Renovations and home additions
  • Area for improvement
  • Local zoning restrictions

The real estate agent will provide you with a detailed report of their findings and include and a suggested price guide for your property.

When should I get a property appraisal?

There are a number of times when getting a property appraisal is a smart idea, including:

  • When you’re looking to sell having an appraisal is a key first step to understanding the local market and price guide expectations
  • You are looking to renovate and want to know what buyers are prepared to pay more for.
  • You have recently completed your renovations and are keen to find out the impact on your market value
  • The local market has fluctuated, and you are keen to stay on top of what that means for you.
  • You are looking to buy an investment property and would like to understand how much equity you have in your property to help with your financial planning.

Why are the figures often different between a property appraisal and a property valuation?

Whilst both property valuations and appraisals look at similar features of a property to determine the market value, the real estate agents’ figures will also include local market sentiment, including demand for the area and demand for a property like yours.

Buyer demand is intangible, but real estate agents are well versed in understanding the local market and how much competition there potentially could be for your property. It is this competition that can help achieve a higher sales price. A real estate agent, simply by the fact they are closer to the local market and most likely have an active buyer database for properties like yours, are able to give you a price guide that factors in market sentiment. This in-turn is often more aligned to the market value of your property if you were to sell it at that point in time.

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