5. COMPARE LIKE WITH LIKE
The primary method of valuation is the Comparison Method. The valuer compares the property being valued with properties which have sold recently.
Some properties are relatively easy to value. New suburbs often have similar houses on identical lots which have sold at similar prices. Other properties such as unrenovated dwellings on larger allotments with re-development potential or properties in closer to the CBD in prestige suburbs are not quite so easy. This is where a valuer can help.
In addition to the Comparison Method, valuers use a check called the Summation Method. The property is divided into segments; land, house and ancillaries (pool, landscaping etc.) and a figure is apportioned to each segment, based on industry standards.
The Summation Method figure should be in the vicinity of the Comparison Method. If not, the valuer looks at a wider range of sales to ensure the ones selected truly represent market value. This check is useful to eliminate sales that are high due to an interstate purchase or low due to a fire sale.
6. LOOK OUT FOR OVER-CAPITALISATION
Each suburb has a ceiling of market value. The cost of the land, plus the cost to build, does not necessarily equal value. There must be recent sales to support the proposed expenditure.
Over-capitalising when renovating is a risk. If the property is listed as the most expensive in the suburb, it’s likely there are no relevant sales to support the price and the valuation may come in less than hoped.
7. CONDUCT A THOROUGH INSPECTION
A building and pest report is essential with any property purchase. This report can ascertain if the value is higher or lower based on required works, or if the property should be avoided altogether.
Conducting your own thorough inspection can save you money if you can eliminate the property from your list, before engaging the professionals.
8. BE OBJECTIVE
Valuers have no vested interest in the property and make evidence-based decisions. The purchase of any property needs to be a business decision. If there’s a house you ‘have to have’ there’s a chance you could pay too much.
The steps above will provide a good indication of a property’s worth. But if you don’t have the time, or inclination, engaging a Certified Practising Valuer is the quickest and most accurate way to ascertain the value of a property and provide the confidence to take the next step.