What is a property valuation?

A property valuation is a formal, detailed report undertaken by a certified practicing valuer (CPV) that determines a property’s market value and examines the property beyond its size and location.

After a valuer inspects the property in person, they’ll compile a valuation report with details of the zoning, the condition of the property, a review of the property’s land title and identify easements or encumbrances, highlight the highest and best use of the property and address any adverse features about that property which might affect its value.

A big part of the valuation process includes risk ratings, which the bank relies on as part of its decision-making process.

Even if you get a good valuation figure, you may still not be approved for the loan if the risk rating is too high for the bank’s appetite.

Simply put, risk ratings are how the bank determines the level of risk attached to lending against a particular property.

It might even surprise you to know that being located opposite a school can trigger a risk rating.

Risk ratings are ranked from 1 (low) through to 5 (high risk).

Depending on how risk-averse your lender is, a rating of 4 or 5 is unlikely to result in getting a green light on your loan application.

These risk ratings include anything from the location, land, environmental issues, the market for the area, predicted future value, and even market segment conditions and volatility.

As valuations are undertaken by professionals, this is a paid service that usually costs between $500 and $800, usually determined by the value and complexity of the report.

When do you need a property valuation?

A property valuation is usually done in a situation where a definitive value is needed.

For example, things like property settlements, applying for finance, land tax objection, or dispute resolutions.

Banks and lenders will also use valuers to get a clear and legally-sound estimate of a home’s worth prior to approving a loan or refinancing.

But a formal valuation can also benefit both buyers and sellers in a usual translation.

A valuation helps buyers reduce the risk of overpaying for a property whereas the detailed property analysis can also help sellers decide which renovations would increase a property’s value.

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Jason Gwerder
Tuesday, 12 April 2022

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