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Tips for property valuation

by Keris Lahiff

The typical valuation process involves an inspection, whereby measurements and photographs are taken of the property. This information is then substantiated by market research, particularly investigation into nearby properties selling at the time.

“There are many factors which contribute to a property’s value, the most influential of which is the land component,” says Greville Pabst, CEO of WBP Property. “The land component will always appreciate where building structures will always depreciate.” Since land can account for up to 70 per cent of a property’s value, the land size, topography, shape and aspect are all taken into serious consideration when calculating value.

“Other factors which can influence the value of a property include architectural style and uniqueness, design and layout, potential for future development or renovation, the number of bedrooms and bathrooms and the quality of fixtures and fittings,” adds Pabst.

However, as Tony Kelly, managing director of Melbourne’s Herron Todd White explains, a valuation is simply a hypothesis.

“A valuation is somebody trying to say that in theory, if this property was put to the market today it would achieve this price so whenever anybody is hypothesising about what might happen today or tomorrow, there’s always an element of theory: it’s not real, it’s not an absolute.”

The very nature of property as a variable product warrants the valuation process. “Residential property valuation is subjective particularly because buying a house is subjective,” says Kelly. “The whole thing with property is that it’s not a homogenous product. Every property is different so it’s very hard to apply a standard modelling system to come up with an answer.

“We try to identify a basket of sales and from that you’ll have a value range, so it’s the valuer’s job to decide within that range where the value for the property is most likely to be.”

Three ways to value property

When it comes to valuing a property, there are three methods:

1. Full internal inspection. This is the most common valuation method, particularly if the loan-to-value ratio is above 80 per cent. It involves the valuer documenting the internal and external components of a property and then overlaying that with research material.

2. Kerbside assessment. There is debate as to whether this method constitutes an accurate valuation. It refers to a cursory inspection of a property from the outside and provides only a value range rather than a single point estimate. Since the valuer does not have the benefit of a full inspection, certain assumptions have to be made and, as such, this additional risk must be stated within the document. Kerbside assessments are also referred to in the industry as ‘restricted assessments’.

3. Desktop Assessments. This valuation practice is limited to research material such as typical market values for the area and paperwork for the property. Any valuation process conducted solely from the comfort of the office is classified as a ‘desktop assessment’. 

Published on: Monday, January 31, 2011