Fair market value (FMV) and property valuation are essential concepts in Australia’s real estate market, including here in Adelaide. Below we discuss and break down these terms and their relevance in the context of the Adelaide property market.
What is Fair Market Value?
The Fair Market Value of a property can be defined as the price at which a property changes hands between a willing buyer and a willing seller, both having reasonable knowledge of the relevant facts and neither being under any compulsion to buy or sell.
The valuation process to determine FMV is typically conducted by certified professional valuers. They consider various factors influencing the fair market value to ensure a comprehensive valuation report. These factors include:
- Location: Proximity to amenities schools, public transportation, and other services
- Property Features: Size, condition, age, layout, and any special features
- Market Conditions: Supply and demand, economic factors, and interest rates
- Comparable Sales: Recent sales of similar properties in the area
Fair Market Value Methodologies
There are three core methods to determine the Fair Market Value of any property which are the following:
- Comparison Approach: This involves comparing the property to recently sold properties with similar characteristics in the same area.
- Cost Approach: Evaluate the cost of replacing the property with a similar one, considering depreciation.
- Income Approach: Estimates the property’s value based on its income-generating potential, commonly used for commercial properties.
How Do Investors and Developers Use Fair Market Value?
Real estate developers and investors are among the prime beneficiaries of property valuations.
It provides a framework or focal point for understanding current economic conditions. This allows stakeholders to plan and manage property acquisitions, sales, or development projects.
More specifically, it allows them to:
- Maximise returns
- Minimise risks
- Negotiate favourable prices
When the above can successfully be done together, the benefits are great. They can aid in the growth and stability of the real estate market. This can apply across residential, retail, commercial and industrial properties.
Developers rely on an FMV property valuation report to review the feasibility and profitability of their projects, while investors use it as a guide to establish rental rates and potential appreciation. That makes fair market value a strong foundation for strategic planning for successful outcomes.
It’s important for property owners, buyers, and sellers to be aware of these factors and when necessary, seek professional advice from licensed valuers or real estate experts to ensure a fair and accurate assessment of property value.
By staying informed about market trends and legal requirements in the region you’d be prepared to make well-informed decisions that are crucial to your success in the real estate market.