In this post, we will discuss the comprehensive guide to property valuation in the Australian context. We will cover the key factors that influence property valuation, property valuation methods, the importance of accredited property valuers, types of property valuations, and how to become a property valuer.
What is a property valuation
Property is one of the most valuable assets for many Australians. Whether it is a family home, a rental property, or a commercial building, it is important to know the value of the property. Property valuation is the process of determining the estimated value of a property.
Property valuation is important for a variety of reasons. Firstly, it helps property owners to make informed decisions regarding their property investments. For example, if a property owner wants to sell their property, they need to know the value of their property to determine the selling price. Similarly, if they want to refinance their property, they need to know the value of their property to determine the loan amount. Secondly, property valuation is important for taxation purposes. Property owners need to pay taxes based on the value of their property. Lastly, property valuation is important for insurance purposes. Property owners need to insure their property for the correct value to ensure they are adequately covered in case of damage or loss.
How much does a property valuation cost?
The cost of a property valuation can vary depending on several factors, such as the type of property, its location, and the complexity of the valuation. On average, the cost of a residential property valuation in Australia can range from $300 to $600. Commercial and industrial property valuations are generally more expensive and can cost thousands of dollars. It is important to obtain a quote from a qualified property valuer before proceeding with the valuation to ensure there are no surprises with the cost. The cost of a property valuation is a small price to pay for the peace of mind and accuracy it provides.
How long does a property valuation take?
The length of time it takes to complete a property valuation can vary depending on several factors. These include the type of property, its size and complexity, and the availability of data and information. On average, a residential property valuation can take anywhere from 1 to 3 days to complete. Commercial and industrial property valuations can take longer, often requiring several weeks to complete. It is important to allow for sufficient time when arranging a property valuation, particularly if there are deadlines involved such as a property settlement or mortgage application. It is advisable to discuss the expected timeframe with the property valuer before proceeding.
Overview of the Australian property market
The Australian property market is a significant contributor to the Australian economy. It has been growing consistently over the past few years. According to the Australian Bureau of Statistics (ABS), the total value of residential dwellings in Australia was $8.1 trillion in 2020. The commercial property market is also growing, with demand for office and retail space increasing. The Australian property market is diverse and includes different property types such as residential, commercial, and industrial properties. It is important to understand the key factors that influence property valuation in the Australian context.
Key Factors Influencing Property Valuation
Location is one of the most important factors influencing property valuation. The location of a property can significantly impact its value. Some of the key factors to consider when evaluating location include:
Proximity to amenities: Properties that are close to amenities such as schools, hospitals, parks, and shopping centers are more desirable and therefore have a higher value.
Accessibility to public transportation: Properties that are located near public transportation such as trains, buses, and trams are more convenient and therefore have a higher value.
Surrounding developments: Properties that are located in areas with significant developments such as new infrastructure projects, commercial buildings, and residential developments have higher values.
Property type and size
The type and size of the property also significantly impact its value. Some of the key factors to consider when evaluating property type and size include:
Residential: Residential properties such as houses and apartments are valued based on their size, location, and condition. The number of bedrooms, bathrooms, and car spaces can also impact the value of the property.
Commercial: Commercial properties such as office buildings, retail shops, and warehouses are valued based on their location, size, and potential income.
Industrial: Industrial properties such as factories and manufacturing plants are valued based on their location, size, and potential income.
Property age and condition
The age and condition of the property can also impact its value. Properties that are new or recently renovated are generally valued higher than properties that are old and in poor condition. Some of the key factors to consider when evaluating property age and condition include:
Structural integrity: Properties that are structurally sound and free from any major defects or issues are more valuable than properties that require significant repairs or maintenance.
Aesthetics and finishes: Properties that have modern finishes and features such as open plan living, updated kitchens and bathrooms, and outdoor living spaces are more valuable than properties that are outdated and in need of cosmetic updates.
Building materials: The materials used to build the property can also impact its value. Properties built with high-quality materials such as brick and stone are generally more valuable than properties built with cheaper materials such as timber or fibro.
The property market is influenced by various market conditions that can impact property values. Some of the key market conditions to consider when evaluating property valuation include:
Supply and demand: The balance between supply and demand can impact property values. When demand is higher than supply, property values tend to increase. Conversely, when supply is higher than demand, property values tend to decrease.
Economic indicators: Economic indicators such as interest rates, unemployment rates, and GDP growth can also impact property values. When the economy is strong, property values tend to increase, and vice versa.
Government policies and regulations: Government policies and regulations such as changes to tax laws or planning regulations can also impact property values.
Property Valuation Methods
There are three main methods used to value a property:
Sales comparison approach
The sales comparison approach is the most common method used to value residential properties. It involves comparing the property to similar properties that have recently sold in the same area. The sales comparison approach involves the following steps:
Comparative Market Analysis (CMA): A CMA involves analyzing recent sales of similar properties in the area. The analysis includes information such as property size, age, condition, and location.
Adjusting for property differences: Once the comparable properties are identified, adjustments are made to account for any differences between the properties such as property size, age, and condition.
The cost approach is used to value properties that are unique or have no recent sales history. It involves calculating the cost to rebuild the property from scratch. The cost approach involves the following steps:
Estimating land value: The first step is to estimate the value of the land the property is built on. This is done by comparing the property to similar properties in the area and adjusting for any differences.
Calculating replacement cost: The replacement cost is the cost to rebuild the property from scratch. This involves estimating the cost of labor, materials, and other expenses associated with construction.
Depreciation factors: Depreciation factors such as wear and tear and obsolescence are then taken into account to determine the final value of the property.
Income capitalization approach
The income capitalization approach is used to value commercial and investment properties. It involves calculating the potential income the property can generate and using this to determine the value of the property. The income capitalization approach involves the following steps:
Gross Income Multiplier (GIM): The GIM is calculated by dividing the property’s sale price by its gross rental income. This is used to determine the potential income the property can generate.
Discounted Cash Flow (DCF) analysis: The DCF analysis is used to estimate the future income the property can generate. This involves estimating the potential income from the property and discounting it to account for the time value of money.
Importance of Accredited Property Valuers
It is important to use a qualified and accredited property valuer to ensure an accurate valuation of the property. An accredited property valuer is a professional who has completed the necessary education and training to become a certified valuer. Some of the key reasons to use an accredited property valuer include:
Accredited property valuers have completed the necessary qualifications to become certified. They have completed tertiary education in property or a related field and have undergone specialized property valuation courses to develop their expertise.
Australian Property Institute (API) standards
Accredited property valuers are required to adhere to the Australian Property Institute (API) standards of professional conduct and ethical behavior. The API is the leading professional association for property professionals in Australia and sets the standard for property valuation in the industry.
Valuation expertise and experience
Accredited property valuers have the necessary expertise and experience to provide accurate valuations. They have completed the necessary practical experience as trainee or assistant valuers and have developed a diverse portfolio of property valuations. They are also required to undertake continuing professional development (CPD) to ensure they stay up to date with the latest industry developments and standards.
Types of Property Valuations
There are various types of property valuations that property owners may require. Some of the most common types of property valuations include:
Mortgage valuations are required by lenders when a borrower applies for a mortgage. The valuation is used to determine the loan amount the borrower is eligible for.
Pre-purchase valuations are used by potential buyers to determine the value of the property before making an offer to purchase. This can help buyers to make informed decisions about the property and negotiate a fair price.
Insurance valuations are used to determine the replacement value of the property for insurance purposes. This ensures that the property is adequately covered in case of damage or loss.
Capital gains tax valuations
Capital gains tax (CGT) valuations are required when selling an investment property. The valuation is used to determine the capital gains tax liability on the sale of the property.
Rental assessments are used to determine the rental value of a property. This is important for landlords when setting the rent for their properties.
Stamp duty valuations
Stamp duty valuations are required when transferring property ownership. The valuation is used to determine the stamp duty payable on the transfer of the property.
Family settlement valuations
Family settlement valuations are used to determine the value of a property when it is being transferred between family members, such as in a divorce or estate settlement.
SMSF (Self-Managed Super Fund) valuations
SMSF valuations are used to determine the value of a property that is held in a self-managed superannuation fund. This is important for ensuring compliance with superannuation laws and regulations.
Easement valuations are used to determine the value of an easement on a property. An easement is a legal right that allows someone else to use part of the property for a specific purpose, such as access to a utility or telecommunications network.
How to Become a Property Valuer
If you are interested in becoming a property valuer, there are several steps you can take:
To become a property valuer, you will need to complete tertiary qualifications in property or a related field. This may include a degree in property economics, property valuation, or a similar field. You may also need to undertake specialized property valuation courses to develop your expertise.
Practical experience is also important when becoming a property valuer. This may involve working as a trainee or assistant valuer to develop your skills and knowledge. You may also need to develop a diverse portfolio of property valuations to demonstrate your expertise.
To become a qualified property valuer, you will need to become a member of the Australian Property Institute (API). The API is the leading professional association for property professionals in Australia and sets the standard for property valuation in the industry. To become a member, you will need to meet the API’s requirements for education, experience, and professional conduct. You will also need to undertake continuing professional development (CPD) to maintain your accreditation and stay up to date with the latest industry developments and standards.
Property valuation is an important aspect of property ownership and investment. Understanding the key factors that influence property valuation, the different property valuation methods, the importance of accredited property valuers, and the different types of property valuations can help property owners make informed decisions about their investments. If you are interested in becoming a property valuer, it is important to complete the necessary education and training, develop practical experience, and become a member of the Australian Property Institute to ensure you meet the industry standards for property valuation. By staying informed and proactive in your property investments, you can maximize the value of your assets and achieve your financial goals.