Property appraisal and property valuation are not inter-changeable terms, and when dealing with property, it’s important to understand what each means and when it is applicable.
Simply put, a valuation involves a formal process and may have a legal standing; whereas an appraisal is informal and not legally binding.
Property Appraisals = Educated Guesswork
A property appraisal is an estimate of price, usually given by a real estate agent.
The agent uses their knowledge of the local area and recent sales in that area, to provide a guide as to the price that might be obtained for a particular property.
There is an inherent bias in appraisals, as they are usually requested by potential vendors, and so higher values are likely to be suggested.
Appraisals are an opinion, are generally free and have no legal standing.
Property Valuations = Systematic Process
A formal property valuation differs from an appraisal in that it determines the actual value of a property from an independent and impartial point of view.
It is a complex process and in most Australian states a formal valuation can only be provided by a qualified valuer who has undertaken the necessary education and training.
This provides some security that all factors relevant to the particular property are adequately considered.
A written report will be produced, and a fee charged.
Registration and licensing requirements for valuers are not consistent across Australian states and territories, with only NSW and Queensland requiring registration and Western Australia requiring licensing.
In South Australia and Tasmania, no registration or license is required in order to practise as a valuer however qualification and experience requirements must be met.
Interestingly, Tasmania previously registered valuers under the Valuers Registration Act 1974 however this Act was repealed.
In Victoria valuers do not need to be registered or licensed, and their qualification, experience, or conduct is not governed by any specific legislation.
They should, however, operate in accordance with a Code of Conduct based on the Code of Ethics, Rules of Conduct and other documents produced by the Australian Property Institute.
When Do You Need a Valuation?
You need a property valuation when a definitive value is required, such as in a property settlement, dispute resolution, a deceased estate, asset accounting and management, to obtain finance to purchase, refinancing or to draw down on the equity in your property.
Banks generally require a valuation when lending for property purchases, however under some circumstances they may opt for a restricted (drive by) or desktop (computer generated) valuation instead of a full formal valuation.
Factors Affecting a Valuation
A valuer must take into consideration the physical aspects of the property, its location, and anything unique that affects its value, so the following are important:
Building structure, its condition and any structural faults
Presentation (including fittings)
Access – vehicle access, pedestrian access, off-street parking
Local council zoning
Caveats or encumbrances over the property
This information is then combined with information about recent comparable sales in the same locality as well as current market conditions to arrive at the ‘true’ value of the property.
What Happens at a Property Valuation?
A property valuation generally involves a visit to the property followed by the application of at least two specific methodologies to come up with a final value. The valuation will be documented, and provided in a report.
Valuations are produced for the requestor for specific purposes and you should not rely on valuations produced for other people or purposes and despite methodologies, there is still a subjective element to the process of valuation so, if the value of your property is not as you expect it may sometimes be worth obtaining a second opinion.