How To Value A Property

Realestate.com.au defines a property valuation as a comprehensive report that determines the market value of a property. The International Valuation Standards Council defines this value as the estimated sale price between a willing buyer and a willing seller, under normal conditions, following proper marketing, where both parties act knowledgeably and without pressure.

Valuing a property involves more than just comparing local sale prices. It requires analysing market trends and the unique attributes of your property. This guide will walk you through the key factors that influence property value, offering insights into how a property’s worth is determined.

In the sections that follow, you’ll discover the main factors that affect property value, the difference between market and bank valuations, and a straightforward process to estimate your property’s true worth.

Market Valuation Vs Bank Valuation

A market valuation and a bank valuation are two different ways of assessing the worth of a property. A market valuation is typically performed by a real estate agent, who considers recent sales in the area and other factors, such as the property’s size, location, and condition to determine its current market value. In contrast, a bank valuation is completed by a certified valuer and considers more long-term trends when assessing value.

Unlike market valuation, which is typically done to help sellers determine a good price for their property, a bank valuation is used primarily to calculate how much money the bank can lend to potential buyers. Because banks are often cautious about lending money, they tend to use more conservative estimates than real estate agents.

So if you’re thinking about buying or selling a property, it’s important to have an accurate understanding of both market and bank valuations, to ensure that you’re getting the best deal possible for your property.

How Is A Property Valuation Calculated?

A direct comparison with recent comparable sales forms the backbone of most residential property valuations, though valuers will also take into account the following attributes:

• Size of the property
• Number and type of rooms
• Fixtures and fittings
• Structure and condition of the building
• Property’s architectural style
• Ease of access to the property
• Planning restrictions and local council zoning
• Location and level of amenities
• Size of the land
• Aspect, topography and layout of the block

How much does it cost to have your property valued? The answer will vary based on the size and value of that particular home. Most people are charged $250-$400 for their services, though some might be more expensive or cheaper. Most valuers will provide the customer with a standard three-page report of their findings within two or three days of their visit.

Four Steps To Determine The Market Value Of A Property

The market value of a property is the price that would be negotiated between a willing buyer and willing seller in an arm’s length transaction after proper marketing.

The value isn’t the current listing price nor the amount of the most recent offer on the property.

Note: We recommend that you pay for a valuation from a professional. Please be aware that this page contains general information only and that if you follow any of the below steps, you do so at your own risk.

Step 1: Find Local Sales

The most common method for valuing a property is to compare it to others that have just sold in the same area.

We recommend that you only consider comparing sales with the following attributes:

• Within 1 km of the property you’re buying (larger areas for country regions).
• Sold in the last 6 months.
• Similar to the property you’re trying to value.

You can get a list of sales for any suburb or postcode from Residex or CoreLogic RP Data.

For our customers:We can send you a list of sales for properties in most states for free.

You may also be able to find comparable sales by looking through the sold properties section of real estate websites.

Search for the suburb you’re interested in and then sort the results so that the most recent is displayed first.

Step 2: Are They Comparable?

Of the properties that have sold recently, focus on the ones most similar to your property.

In particular, look at the following attributes:

• Location: Is the location the same distance from amenities / transport and are both streets similar in appearance?
• Size: Is the land size similar and is the living area similar?
• Rooms: Are there the same number of bedrooms, bathrooms and car spaces?
• Quality: Are both properties of a similar standard?

You must compare properties that are as similar to your property as possible; otherwise, your final figure will be inaccurate.

How do you know if the properties are comparable if you haven’t been inside?

Try searching in the sold properties section of real estate websites and you can often find the old listings of that property.

You can also try doing a Google search for the address.

Driving past the property or using street view in Google Maps is another good way to get an idea of what the property is like.

Step 3: Superior Or Inferior?

Once you have a list of 3-5 properties that are similar to the property you’re looking at, try to decide which properties are superior to yours and which are inferior.

Try to be objective. If this is difficult for you, ask a friend to decide which ones they think are better.

You should consider the location, land size, living area, parking, views and standard of finishes when considering whether properties are superior or inferior.

Bank valuers will normally look at the land and the building separately. They may say, ‘Superior land size and location, inferior improvements (house); overall, the property is slightly superior.’

You should now have a range for the value of your property.

Step 4: Adjust For Market Movements

In a hot market, comparable sales from more than three months ago no longer indicate current market conditions. Make small adjustments to your estimated value to take this into account.

If you’ve been going to lots of open homes and auctions, you should have a good feel for what the market is like in your area.

You can also use some of the metrics listed at the bottom of this page to help you gauge the level of heat in the market.

Common Property Valuation Mistakes

If you’re careful and research properly, it’s possible to value properties accurately using the above method.

That being said, some people make mistakes that result in them offering too little and missing out on a property or overpaying.

Comparing Properties On The Market

Properties still on the market can’t be used in the comparison, as they have not had an agreed-upon price as yet. Many sellers have unrealistic expectations, so please compare your property only to properties that have sold.

Being Influenced By The Agent

The agent may tell you of other offers on the property or interest at a particular price.

In most cases, the agent will be telling the truth, but you can never really be sure. Rely on comparable sales only and ignore anything the agent tells you about other offers.

Not Comparing Apples With Apples

Many people compare properties of completely different sizes, levels of quality and locations. Be careful to make sure the sales you use are truly comparable. This is most difficult in markets with very few sales and for unique properties.

Emotional Attachment

People selling their home often have a strong emotional attachment and believe their home is worth more than it is. Buyers can also fall in love with a property and end up offering over-market value to secure their dream home

Not Knowing The Market

We strongly recommend that you go to as many open homes and auctions as possible so that you begin to understand the market. Otherwise, you will not know which locations are superior to others.

New Properties / Off The Plan

People often pay a premium for brand-new properties. If you’re looking at a new home, try to compare your property to sales outside of the complex you’re buying, as they tend to be more accurate.

Government incentives for buying a new property can temporarily inflate demand, making properties appear to be worth more than they are.

Listening To Media

Australians love to read about property!

Australians love to read about the property market. The media capitalises on this by running a story every time a new statistic comes out, or an ‘expert’ proclaims prices will plummet or skyrocket.

Try to get your information from Residex or CoreLogic instead.

Both have regular newsletters based on actual facts and statistics. They also have no vested interest that would cause them to mislead you.

Useful Property Valuation Data And Figures

There is no shortage of figures available to you that can help you learn more about the property market. Below are the ones we believe are most helpful.

Median House Prices

The median house price indicates what a mid-range house is worth in a particular area. Be careful if the location has not had many sales recently or has had a large new development sold there recently.

This figure can also be misleading for units because many sales are for new units, not existing developments.

Auction Clearance Rate

This is the percentage of auctions that result in a successful sale, either at auction, before the auction or just after the auction. This varies across different markets, but the trend is an excellent indication of the current level of demand.

Discounting Percentage

This is available on the suburb profile on the Domain real estate website.

The figure shows the average discount to the listing price that buyers and sellers agree upon in a particular area. If a property is listed for $1,000,000 and sold for $900,000, the discounting percentage would be 10%.

Days On Market

This is the average number of days it takes to sell a property in a location. It is another excellent indication of the level of demand in a particular suburb.

Be careful with all facts and figures. They can easily be misinterpreted or twisted by the media. In addition to this, aside from the auction clearance rate, most of these figures will be at least a month or two old by the time they are published.

If you’re a first home buyer, follow our step-by-step first home buyers guide.

Benefits For Our Customers

If you’re one of our customers, we can provide you with lists of local property sales and other data using our subscription to CoreLogic RP Data. Please contact your mortgage broker for more information. If you’re not an existing customer, please complete our free assessment form to find out how we can help you get approval for a home loan and comparable sales for the property you’re buying.