Valuations can be a tricky thing to get your head around, and if you have ever had one done you know they can differ so much between each Bank and each valuation firm. In this article CRAIG WILSON, CEO of PiC Group, explains the why, how and what of property valuations. 

Let me start by telling you what a valuation is, and how it is used.

A valuation is basically a dollar value put to a property (house and land) at its current state in the market.

There are two different types of Valuations.

A Desktop or a Full Site Valuation.

A Desktop Valuation is done just on a computer without anyone going out to the property and inspecting it – these can be done quickly and without notice.

A Full Site Valuation is where a valuer will go out on site, take pictures and do a full report.

Both can differ completely in dollar value, risk ratings and comments – because they are done by different people and firms.

Why are Valuations even necessary?

If you are buying you will need this done to see how much you are borrowing against the property. And in some cases you might be able to to negotiate on the sale price accordingly.

Also, if you have an existing property portfolio and wish to use equity from those assets to buy a new property, you will need to get valuations done on everything.

This is so the Bank can understand your current position and borrowing capabilities.

So you’ve had a Valuation done, now what?

The Valuation will go directly to your Bank or Broker and they will read all the comments and of course the price the valuer has given the property.

Aside from a price, a rental range will be estimated, as well as sliding scale for Risk Ratings from 0-5 (5 being the highest).

These include:

  1. Location and neighbourhood; is this a sought-after area, does it have a lot of infrastructures around like schools, hospitals etc., is it well known?

2. Land; this is the Title, access and zoning. The main one is zoning which only comes into play if the land is near a lot of industrial infrastructure and could possibly change zoning to be more commercial/industrial area down the track.

3. Environmental issues; things like being flood prone or has a high risk of that type of thing happening, bush fires are another one.

4. Improvements; Buying brand new this one won’t be an issue, but say it has some key elements missing like bathrooms, kitchens etc., it may have a higher risk rating as more improvements will need to be made to the property.

5. Market; this one is really on the market direction, which means what will be happening into the future for that area, and it can be a tricky one depending on where you are buying.

6. Market Volatility; If you are looking to buy a unit in an area that has a lot of oversupply and still a lot of construction happening in the area this rating will bit high and may affect the price given on the report.

7. Impact on local economy; this is for areas like mining towns which can be affected quiet strongly if the work slows down or stops completely. It’s just another risk that need to be considered.

8. Market Segment; If you have a very unique property on a unique block of land, that might run the risk of taking longer to sell (in a normal market). The Bank needs to consider if there was ever a situation where it had to be sold quickly, they need to rate the risk of doing that.

With all that said, hopefully that clarifies the what and why of Valuations and you now have a better understanding of how the process works.

If you would like to talk about anything property related send me an email, call me on M: 0418 872 202 or visit our Facebook @PiCGroupteam

Craig is the founder of PiC Group since 1993 and SiNC Surveys, and a successful private investor in his own right, coming from a background in the insurance, financial planning and real estate development industries.  

General Advice Warning: This blog is not designed to replace professional advice. It has been prepared without taking into account your objectives, financial situation or needs. You should consider the appropriateness of the advice, in light of your own objectives, financial situation or needs before making any decision as to what is appropriate for you.

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Finance Education What is a Property Valuation and How Do They Work?