How does a valuer value property?

I have witnessed an increasing popularity in property investment as a viable alternative to other, more traditional methods of growing your retirement nest egg over the last decade.

Once most Australians relied on their Superannuation, an aged pension or a combination of the two, with some dabbling in the acquisition of shares, more of us are recognising the benefits of high growth residential real estate as a sound investment vehicle. 

In order to grow a wealth-producing portfolio however, it’s important to understand the basics of housing value movements.

Why?

Well, because for one, you cannot successfully use equity to leverage into further high growth assets without staying on top of how well the market (and your particular piece of real estate) is performing at any given time.

So in this article, we consult with managing director of FVG Property Group Mark Ruttner, who specialises in commercial and residential valuations, to gain his expert insight into how valuers assess and determine the worth of your home and investment properties and what this means for you.

First things first

What should you be looking for when considering your next property purchase – be it a home of your own or an investment – with regard to its potential as an equity building asset?

“The first thing I strongly recommend to anyone, regardless of whether it’s a residential or commercial property, is to have a valuer come out and look at it before you sign any contracts or make a firm decision,” counsels Mark.

He says this establishes your “comfort zone” as a purchaser, based on your own current financial position and what you hope to gain from the property over the term of ownership.

What will the valuer look for?

As an overview of what you should expect from a valuer you engage to provide their expert opinion on a property you are thinking about buying. 

Mark says before they even step foot inside the premises, they will have done substantial homework into the market and more specifically, the property’s history.

They will look into recent transactions over the last six months for comparable properties in the neighbourhood, based on similarities in building structure, size and land component and should also check as to whether there are any restrictions on the title that could impact future use of the property.

For instance, is there a single dwelling covenant or easements that could impact development down the track?

Once careful analysis of comparable sales has been conducted, the valuer will physically inspect the property.

“That process will probably take about ten to fifteen minutes,” says Mark. “The valuer walks from the front to the back door, taking a brief description of each room or living zone and looking closely at the quality of finish, fixtures and fittings.

Obviously there’s a variety from high end to low end, so we’re looking for things like stone bench tops, quality of carpets, how well the layout and design functions, natural light and so forth.”

Once the valuer has a detailed description of the property’s interior, he or she will then measure the land allotment to ensure all boundaries are in accordance with the specifications on title and finally, visit some of the other properties identified in the original market assessment to determine (from a kerb side inspection) whether they are indeed comparable.

A thorough analysis is then performed based on the overall land and building component, as well as confirmed comparable sales, with most valuers generally falling within 10 per cent parity of market value, according to Mark.

Managing client refinancing expectations

Ultimately, even though there might be occasions where valuations come in under or over market expectations at any given time, the fact is, most reflect the overall market sentiment of the day.

Because let’s face it, a property is really only worth what someone is willing to pay for it.

That being said, we tend to see more variables in market valuations on properties where the owner is looking to refinance for some reason.

Often, the client will have undertaken renovations and believe that shelling out $20,000 for a new kitchen, floor coverings and shiny fittings should have doubled the value of their property almost overnight.

Then there are the clients who need to refinance as they have become caught between a rock and a hard place due to flirtations with expensive credit or an extension or renovation overspend.

They decide their property has to be worth X amount, because that’s what is required to get them out of a fiscal pickle.

Irrespective of what you need your property to be worth, it will be valued according to the market conditions of the day, which is largely determined by what buyers are prepared to pay for a home in your area.

It’s really that simple.   

Mark agrees that managing client expectations can be tough as a valuer;

“I think vendor’s expectations are always a little bit high. I know personally, my house is worth more than any other house in our street and everyone has that opinion.”

Ultimately, a professional valuer will have conducted thorough due diligence to determine the end value of a property, basing their decision on the evidence at hand.