Appraisals and valuations are similar in that they both provide an estimate of how much a property is worth. However, there are some very important differences too – not least of which is that they’re used for very different purposes.
We explore the key differences between a valuation and appraisal, and when you would need one rather than the other.
Property Appraisals
Interested in knowing the potential value of your home for your own information but not keen on spending money for the service? A property appraisal would likely be the better choice.
What is a property appraisal and what is it used for?
A property appraisal is an informed opinion of how much an owner would receive for a property if they listed it for sale in current market conditions. Usually performed by a real estate agent, an appraisal should generally only ever be considered an estimate and real estate agents don’t usually charge for carrying them out.
An appraisal isn’t legally binding. However, as property prices can change rapidly, it can be an important first step in your process if you’re thinking of selling. Sometimes a property owner will also ask for an appraisal if they’re renovating, especially if the agent is prepared to give their informed assessment of the home’s changed value pre- and post-renovation.
What does an appraisal look for?
When a real estate agent appraises a property they’ll look at the features, appeal and livability of your property and compare these with properties that have sold recently. They will particularly be interested in assessing:
- the location of your property
- the number of bedrooms and bathrooms
- the size of your rooms
- the state of the property and whether any work needs to be done
- the size of your block of land
- any outdoor areas, such as a garden, backyard and entertaining area
- whether there are special features, such as a pool
- whether there is scope for new owners to develop, renovate or add features.
The real estate agent will also take into account their knowledge of the depth of buyers in the market and what they know is likely to appeal to them.
How do you get a property appraised?
Most real estate agents offer free market appraisals. Because it’s an informal rather than binding assessment, you generally won’t need to provide the agent with any documents or extra information. You’ll just need to arrange a time for them to come and inspect your property and inspect it. They may also want to ask you some questions.
If you’re thinking of selling, it can be a good idea to contact a few agents and ask them to appraise your property because estimates may vary from agent to agent.
Property Valuations
If you need a solid figure on the value of your home to acquire finance or similar then an official property valuation is the better choice.
What is a property valuation and what is it used for?
Unlike an appraisal, a property valuation is a formal, written report that provides an accurate guide to a property’s value. Property valuations are carried out by licensed valuers and they are considered so accurate that they will usually stand up in court.
For this reason, a formal property valuation is often used in wills and deceased estates, divorce proceedings or property settlements and tax matters.
Banks and other lenders also use property valuations in their risk assessment processes because they can provide a reasonable guide to a property’s value and whether it is suitable security for a loan.
They can also provide an indication of how much equity a borrower actually has in their home and the loan to value ratio (LVR). This gives the bank a good idea of their likely exposure if the borrower defaults on their mortgage repayments.
What does a property valuation look for
To get the most accurate assessment of your home’s value, an accredited property assessor will consider a number of factors:
- The features of the property, including its layout and how many bedrooms and bathrooms it contains
- Whether the property has a garage or carport
- The size of the land on which the home sits
- The condition of the property and whether there are any maintenance issues
- The state of the kitchen and bathroom, and how appealing these will be to buyers
- Whether the property has been recently renovated and whether there are any half-finished renovations that need to be completed
- The state of the local property market, including any recent comparable sales
- Whether there are any issues that are revealed in a property inspection or search, such as being situated in a bushfire zone or flood plain
- Whether any zoning or heritage restrictions apply to the property and restrict an owner’s opportunity to develop it
- The property’s location and whether it has a view or is impacted by noise, as well as its proximity to transport and other amenities
- The quality of the build, including any materials used, as well as defects
- Any improvements on the property, such as landscaping, a pool or tennis court, studio or granny flat or other features
- Any other characteristics that could impact the property’s value
How do you get a property valuation?
We’ve set out the general steps for obtaining a property valuation below.
- If the valuation is part of a bank’s approval process, they’ll usually arrange for their own accredited valuer to come and view your home. If you need to obtain a property valuation independently, you should contact an accredited valuer yourself. Make sure they’re properly qualified and discuss their fee upfront.
- Before the valuer comes, you should make sure your property is in the best possible condition. Treat it like an open home, so that it’s clean, attractive and well presented.
- If you have any small maintenance issues that need fixing – or if you’re halfway through a renovation – it’s better to attend to these before you have your property valued, as they can impact the property’s likely price.
- The valuer will set a date and time to come and view your home. Make sure they have access to it, including access to any areas they need to view such as the roof and under house area.
- The valuer should always provide you with a written report. This sets out their estimate of the property’s value, as well as the reasoning for assigning that value.
Do you need a property valuation or a property appraisal?
Whether or not you need a property valuation or appraisal depends on why you need a price estimate for your home in the first place. If you’re looking to sell, you probably only need an estimate – or perhaps a few estimates. It can also be a good idea to get an estimate if you’re renovating your home.
If you need finance, your lender is likely to require a formal evaluation. You’ll also need one if your property is part of a court settlement.
If you’re curious about your home’s value – or you’re not yet ready for an appraisal or evaluation – you can receive an estimate of value immediately through realestate.com.au’s Track My Property page.
This will give you a guide to your home’s value based on comprehensive recent data and can be an important first step in selling, refinancing or renovating your home.
Article originally published on realestate.com.au