What is a property valuation used for?
Property valuations are used for a range of purposes, including investment reporting, tax, legal and lending requirements. For example, a valuation may be used to help calculate the value of units in a property trust, determine land tax or council rates, settle an estate or dispute, or assist a lender in determining how much it may be prepared to lend.
The role of a professional valuer
A professional valuer brings together relevant property information, market evidence and the appropriate valuation methodology to arrive at an estimated value. This may include looking at comparable sales, the income the property generates, its condition and characteristics, and current market conditions. The valuation report will generally explain the method used, the information considered and how those factors contributed to the final estimated value.
Common approaches to property valuation
There are three main approaches commonly used when valuing property.
Sales comparison approach
This approach compares the property with similar properties that have recently sold in the area. Factors such as location, size, condition and nearby amenities are considered when assessing the comparison.
Income capitalisation approach
This approach is commonly used for income-producing properties. The value is estimated by looking at the income the property generates and applying a yield or capitalisation rate.
Replacement cost approach
This approach considers what it would cost to replace or rebuild the property, with an allowance made for factors such as age, condition and depreciation.
The valuation approach used will depend on the type of property and the information available. In some cases, more than one approach may be considered when forming a view of value.
What can influence a property’s value?
A number of factors can contribute to the value of a property such as;
Location
The surrounding area, access to amenities and the desirability of the location can influence value.
Income
For an income-producing property, factors such as the tenants, rent being paid, lease terms, occupancy and property operating costs can be considered.
Property characteristics
The size, age, condition and individual features of the property can all play a role.
Market conditions
Broader economic conditions, supply and demand for similar properties and interest rates can influence property values.
Zoning
Planning and zoning requirements can influence how a property may be used and therefore its value.
A property valuation provides an estimate of value at a particular point in time. As market conditions, property income and other characteristics change, the value of a property may also change over time
Please note
This article has been prepared by Selfund for general information and education purposes only.
It has been prepared without taking into account your individual objectives, financial situation or needs. Before making any investment decision, you should consider whether the information is appropriate for your circumstances and seek independent professional advice where appropriate.