When you are looking to buy a property, apart from getting pest and building inspections done, the valuation is vital in getting the loan for your new place. Often we hear that it’s the valued price of the property that determines whether you can or can’t get the loan for the house. So this blog will give you a little insight into how a place gets valued.
What is a valuation used for?
A valuation is done by an independent valuer who goes around to the house you want to buy and gives his opinion of what it is actually worth. The lender needs to know what its worth so they can then determine how much they can loan to the new buyers for them to purchase the property. Make sure that when talking to your mortgage broker/bank that they get an unbiased valuation – and ask for a copy if you can. Or better than that, order one yourself.
The valuations also help if you want to work out how much equity you have in your home, and can be used in refinancing, purchasing investment properties, using the equity for business ventures, investing in shares. The list goes on…
Why are valuations important?
It determines how much money you can borrow, and if it is an independent valuation, then you won’t get swayed by Real Estate Agents giving you an inflated value for your house, as this sometimes occur. Normally a valuation costs around $300.00.
What methods do professional valuers use?
1. Direct comparison valuation – they use recent property sold prices in the area for the past six months and compare your property to what’s sold. And if there are any differences then they either increase or decrease the value accordingly.
2. Summation method valuation – it’s a formula which adds the value of the land to the value of the improvements on the land – such as a house, pool and garage for example. Land value takes into account things like size, shape, location, views and surrounding infrastructure. The value of the improvements takes into account things like age, style, architectural features and overall appearance.
Most professional property valuation companies use a combination of these two methods.
What’s the process for a valuer to value a property?
1. Company will send an assessor to inspect the property – it takes around 20-30 minutes.
2. The assessor undertakes a background research into the local property market and then produce a written report about the property.
Usually professional property valuations are commissioned by the lender, so you may never see the valuation report unless you organise one yourself.
I hope that this helps people when they are either buying a property or thinking of refinancing their own property.