Property valuation: what it is and how it works

LJ Hooker's guide for first-time sellers answers the question of what a property valuation is. It describes one as a figure calculated by a qualified valuer. A valuation is often called for where a definitive figure is needed, the guide says, giving the examples of applying to a bank or a home loan lender and of putting a figure on a deceased estate. The guide says getting a valuation costs money.

Valuing is a complex task, the guide says. It says a valuation takes in where the property is, what the home offers, the structure and condition of the building, local council zoning, caveats and encumbrances, and any building faults. The figure a valuer reaches tends to sit on the lower side, the guide notes, and it does not take into consideration the emotion of a buyer.

The guide sets out a difference between a valuation and an appraisal. The guide says licensed real estate agents give appraisals and that they specialise in answering the question of how much a home is worth. They do it through a comparative market analysis, the guide says, looking at similar properties sold in the last 90 days. The closer a property matches others sold nearby, the more accurate the appraisal, the guide says. The guide says agents also consider current competition, broader market trends, and the structure and condition of a property.

An appraisal is informal, according to the guide, and can differ from one real estate agent to another. The guide says the figure an agent gives reflects how much that agent thinks could be obtained if the property were listed with them. The guide also warns about online tools that estimate what a home is worth, saying they may not draw on the latest data, which risks a home being offered at too high or too low a figure.

A valuer's figure, by contrast, may not reflect any one buyer's interest in a home and rests on market analysis alone, in the guide's account. That can mean a lower number, and the guide says a lower figure could lead to a home being set at too low a figure.

The guide says the figure matters most when a home is first advertised, because that is when most people will look at the listing, and a figure set right from the start limits the risk of missing opportunities. The guide says a home offered at too high a figure can stay on the market for a long time. Past 60 days, the guide says, buyers may begin to think something is wrong with the property, which can leave the vendor having to cut the figure sharply to sell.

On how to set a figure for a home, the guide's own suggestion, for a private treaty sale, is to talk to a real estate agent, to consider the appraisal the agent has given, and to look at local market reports and recent sales of similar properties. Where a home goes to auction, the guide suggests keeping in touch with the agent through the campaign, and notes that inspections, the number of contracts out and the figure the market puts on a property help in setting a reserve before auction day.