The people involved in land valuation
In part one of a two-part series on land valuation, we examined the nuts and bolts of what you need to know. In part two, we talk about the people who are part of the process: valuers and real estate agents.
VALUERS
Valuations are ordered when a definitive value for a property where finance, settling a dispute, or establishing the value of a deceased estate is required.
There are many valuation firms that are hired both by buyers and buyers’ agents, vendors and developers and lending institutions, bringing an independent eye that can provide essential knowledge to ensure that all parties can make an informed decision about a particular property on the market and its deemed market value. The valuation of residential property is a diverse field and includes suburban residential, prestige homes, beachfront dwellings, thousand-lot multi-stage residential subdivisions to smaller scale unit developments and commercial/retail.
A certified practising valuer will conduct a full inspection of the nominated property, carry out research and analysis into the local market with comparisons to recent sales and submit a detailed report providing information and commentary on issues affecting the current market value of the property.
Typically reports include:
- An executive summary detailing the property and business.
- A site appraisal specifying;
- Land particulars
- Improvements
- Market comments
- Income analysis
- Sales evidence
- Rationale
- A valuation reporting summing up the analysis.
There are three ways a valuer may value the subject property:
- Full value – this involves the valuer undertaking a full inspection of the property, including an internal inspection.
- Kerbside – the valuer literally stops outside the property and does not undertake an internal inspection.
- Desktop – this involves the valuer collecting comparable sales data based on the description of the property and where no physical site inspection takes place.
Depending upon who has ordered the valuation determines how they will use it.
For buyers who are not sure if they are paying too much or how much to offer, a pre-purchase valuation will give reassurance about the price and many other aspects of the property before an offer is made. As a buyer, you can use the valuation to your advantage as a bargaining tool if the valuation comes in lower than the vendor is asking. You may also be able to do your own research and provide the valuer with comparable sales that are favourable to you. The valuation may also confirm that what you intend to offer or what the vendor is asking is market value – but it doesn’t hurt to always put in a lower offer – you just never know if the vendor will accept or not.
When ordering your independent valuation, you may ask for it to be formatted so that it can also be submitted to the bank in their formatted criteria and ask for it to be assigned to say in two bank names, therefore when the time comes for the bank to order a valuation, you have one on file that hopefully matches what you are trying to achieve – lower than market value or at least on contract price. You may also be able to ask the bank to provide you finance based on the higher valuation, rather than contract price, therefore providing you with a higher loan-to-valuation ratio.
When selling, present the valuer with information including recent comparable sales and points about your property that presents it in the best light. Ensure the presentation reflects the price you are trying to achieve, e.g. gardens are manicured, cleaned fixtures and fittings throughout the property, declutter or accessorise fashionably.
On the flipside, if you want a new valuation on your existing asset base so you can draw upon the equity to further your portfolio, this is when it would be in your interest to get the valuation as high as possible.
- For developers and vendors, the report will give them an idea of how to market their property and at what price point. Too high a price and they won’t get the buyers they require, too low a price and they won’t make the profit margin they projected. Again, an independent valuation is a tool they can use to provide buyers proof that what they are asking is fair market price.
- Lending institutions will always order a valuation when you are taking out a loan for a new purchase or if you want to draw equity from your existing portfolio. They need to know that the money they are lending you is financially secured by that asset and this will form the basis of their LVR (loan to value ratio) and will also provide them with a realistic sale price should they need to sell the property quickly (normally referred to as a fire sale).
Find out which valuers sit on particular banks panels by either asking the bank, broker or asking the valuer themselves. Also find out which areas they usually value and what types of properties they value. A bank won’t accept a valuation if the valuation firm is not on their panel.
REAL ESTATE AGENTS
A real estate agent has the obligation to get the best price for the vendor and will use databases and their knowledge of the local market and recent sales to provide a “market appraisal” when you wish to sell your property. These appraisals are intended as a guide only and are not the definitive price which may be achieved for that property.
Appoint an agent who is acutely familiar with your suburb and who does not work outside the area. An agent who works outside of the area may result in an appraisal that is too high and not achievable, or too low essentially providing a property below market value.
Be wary of agents who quote an extremely high price and therefore providing you with an unrealistic expectation of the final sale value. They may be doing this just to get your business and you may wonder why you do not have any viewings. Vendors are soon conditioned to lower their asking price to meet the market feedback. Again, conduct your own due diligence on pricing in your local area.
On the other hand, agents who value too low not only hurt the vendor with the end result, but can ultimately bring down values of an area if the sale is then used as comparable data with professional valuation firms and professional property databases, such as RP Data.
As a buyer, using the services of professional database firms and independent valuers as a tool for your negotiation with the vendor and agent, plus finding out the true motivation for that sale (e.g. bought elsewhere, divorce, financial stress) and using it to your advantage, may assist you in saving thousands of dollars and purchasing that property under market value.
If your offer has been accepted at a particular price and the valuation comes in very low after the initial offer period, I would ask for strong evidence as to why you would continue with the purchase at original agreed price based on the valuation you have received.
At the end of the day, true market value is achieved when both parties agree on the final sale price and a settlement occurs.
Although investing can be fun, exhilarating, scary and heart-stopping, it’s still a business and should be treated as such because that investing business could be worth millions. I myself have called our investing “B’dearys Vision”. It gives it a name and therefore is treated as a business entity. Just because you like the tiles in the bathroom or the swimming pool or the colour of the walls does not necessarily make it a great investment, and it may cost you dearly investing with your heart.
While every effort has been made to ensure accuracy of this article, please refer to your state or territory’s Valuer General’s Office or Office of State Revenue for more detailed information and seek independent advice pertaining to a particular purchase.
Swarnie Condon is passionate about property investment with a total of nine properties in her portfolio. Swarnie is co-author of the book Journeys Along the Property Path and founding partner of Inspirational People in Property. Swarnie provides free mentoring services.