Do you own a house? Maybe you’re about to enter the market and join many Australians in homeownership or residential property investing. No matter where you are in your real estate journey, it is important to know when and how to use a house valuation to make the most of your investment.
What is a house valuation?
This is a service provided by a certified professional known as a house valuer. It is a meticulous examination of all the many factors influencing your home’s value. This thorough process results in a comprehensive sworn property valuation report.
How can you use a house valuation report?
A valuation report can be used in a wide range of formal and informal scenarios. For most, your first experience with a house valuation is when you are seeking home loan approval from a bank or lender. This can be done via an independent house valuer or an assigned valuer from the lender’s panel, depending on their standard procedure. In this scenario, the valuation is what determines the success of your loan application.
Other ways you can use a house valuation report include:
- Insuring your home
- Paying CGT or stamp duty tax
- Seeking fair compensation
- Settling property after a separation or divorce
- Transferring homeownership between relatives
Because a valuation report is a legally binding document that has been completed by a qualified professional, whatever your use of the report, the precise details allow for a high chance of an optimistic outcome.
The difference between price and value
A house valuation’s key purpose is to report the property’s market value. Value is different to the price you purchase or sell a house for. Market value is defined as the amount that would be expected to be exchanged in an open market sale of a residence. The buyer and seller here would both be well-informed, prudent, and free from anxiety which could affect their judgement.
For most things such as loans, insurance and taxation, the figure that is most crucial is market value as it is an objective figure of your house’s worth in the market.
The price is the amount that has either been set by the seller or is the final sales price that was agreed upon by both buyer and seller. Price can easily be swayed by selfish motives such as making a profit, swiftly selling before a deadline, winning over any competitors etc. In short, this figure may not be accurate to the value of the property in the current market conditions.
How your house value is determined
A house valuer will use industry-regulated methods to accurately determine the market value of the property in question. The most commonly used method is the direct sales comparison approach which involves assessing comparable properties that have recently sold in the area.
When using the direct comparison approach, a valuer must have considered the property’s:
- Size: the total area in square metres and land occupancy.
- Type: this could be a flat, duplex, single-storey house etc.
- Location: suburb, street type and location, `proximity to the CBD and amenities.
- Age: the approximate year of the structure’s construction.
- Condition: if the property has been well maintained over the years, is well-built, has had any recent renovations or improvements.
- Number of rooms: bedrooms, bathrooms, living spaces, car spaces etc. all affect the home’s use and desirability.
- Zoning classification: if the house was built on appropriately zoned land, is at risk of compulsory. acquisition or other considerations could affect value.
- Council restrictions: restriction on the property could affect how you can use the land.
- Extra features: pools, solar panels, outdoor entertainment spaces and more affect the comparables that may be used for valuation.
Other methods valuers use
Another method that is quite common with house valuations is the cost summation method. This can be used as a supplementary valuation method to refine the final valuation or it could serve as the primary method used for the report. This will depend on the intended use of the report.
When using the cost summation method, the valuer considers the above-mentioned factors and more then determines the “cost” of each. They will then use the summation of these costs to determine value. A popular use for this method is insurance as the total cost of replacement lends to comprehensive cover.
The last of the three major valuation methods is the income approach. This is best used for such things as rental properties or mixed-use/commercial properties. The property’s net operating income and capitalisation rate are the key elements of determining value with this method and as such is good for comparing potential investment properties and deciding if they are worth the risk.
Ready for a valuation?
If it is time for you to have a house valuation, make sure to hire experienced and certified experts you can trust. It also helps to go local, as this can make the valuation more affordable and all the more accurate.
Get in touch with a local house valuer today or talk with one of our friendly experts for more information and extra guidance into the world of house valuations.