Property Valuation 101

Why Do You Need A Property Valuation?

By Tim Stokes

Anytime you buy or sell real estate, you need a property valuation. The primary purpose is to find out exactly how much your property is worth. Banks and similar lending companies often require it, before a buyer can obtain a mortgage.

A property valuation is an “educated and trained opinion” on the value of the property. It also, in some circumstances, may ascertain the best use of the property, garnering the best selling price. For example, a long-time residential property may be in an area that has been rezoned for commercial activity, which could potentially bring in a higher sales price than marketing the real estate to potential residential buyers.

A valuer differs from an inspector, who is looking for things that need to be corrected, repaired or replaced. Though a valuer will look at these same things, he/she is only interested in developing the value of the property.

A property valuation is based on the highest and best use of real property — what use of the property will produce the highest possible value? The final appraisal must be both profitable and probable.

The Property Valuation Process

The valuer looks at each property individually, beginning with an objective inspection of the interior and exterior of the home or building, as well as driving through the surrounding neighbourhood. The valuer looks for the assets, as well as the detriments, of the property.

For homes, gross living space, quality of construction, location, layout, the number of bedrooms and bathrooms, the lot size, condition of the home and land, heating, landscaping, decks, fencing, recent renovations, amenities provided by the surrounding neighbourhood, are all considered by the valuer.

Living space is calculated by measuring the outside of the home. It does not include such areas as the garage, porches, sheds, and so on. Basements are generally calculated separately from the living space. The contributory value of basements is determined by the local market, local regulations, if it is finished or not (and the quality of the finish), and so on.

If you are the real estate seller, you should point out any features, amenities or improvements of your home that are not readily discernable.

Next, the valuer analyses the available market data for your area and the surrounding neighbourhood, including current and historical comparable sales, current offers for comparable homes, and proposed improvements. The valuer gathers data from a variety of sources, as well as his/her own personal knowledge of the local market. The valuer then compares your real estate to the broader market.

Each valuer has his/her own process of analysing, collecting and reconciling the needed valuation data. If you get five different appraisals for your real estate, you may receive five different opinions. They should, however, all be within a similar value range, if they are completed within the same time frame and under the same conditions.

Though a property valuation is not for public consumption, it may be shared with all parties concerned. For instance, a buyer has offered $350,000 for a home, but the buyer-side, commissioned valuation is only $335,000. Sharing this appraisal with the seller means that the owner can do needed improvements to bring the price up or offer the real estate to the buyer for the valuation amount.

For the highest property valuation possible, real estate sellers should have an inspection and valuation done before putting the property on the market. First, the inspection in order to make any needed repairs or renovations. Then, get the valuation to ensure you are getting the most for your real estate.

This article is used with kind permission from Homewardfound.co.nz, a resource of free articles and information for first home buyers and newbie investors.
Visit www.homewardfound.co.nz for more information.