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Understanding property value

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Understanding property value

Gaining an understanding of the value of your property is a useful thing to do, whether you are in the market for a new home or already own one. Property markets fluctuate all the time, and gaining an understanding of how your property fits within this is useful regardless of whether you are looking to sell or not.

For sellers, knowing the value of your property along with the movements of your local housing market is the best way to assess which time of year to sell and what price to list your property for on the market. For home owners not looking to sell, having an accurate idea of how much your property is worth is helpful in gaining an idea of your equity position, particularly if it has been a while since you bought it and the value has gone up.

Obtaining a property valuation report is also essential if you are applying for a home loan or refinancing your mortgage. This is because the property in question is viewed as security against your loan.


If you’re looking to buy a house, it is paramount that you gain an understanding of the realistic value of the property you have set your eyes on. A seller’s asking price and what their property is actually worth can end up being two very different things!

Getting an accurate property valuation can help with the negotiation of a sale, as is gives both parties an accurate baseline estimate for what the property might be worth and allows them to narrow their negotiation to fit within a range, using the valuation as a reference point.

So what is property valuation and how do decisions about the value of a property get made?

Property valuation is the process of assigning an estimate of monetary value to real estate. Property valuations are communicated through documentation, which takes its from in a formalised report that details the property and valuation features, including relevant information about the physical condition of the building, features the property has along with comparative prices for other properties in the area.

There are several types of property valuations, including:

  • Automated Valuation Model (AVM)
  • Appraisals/privately ordered valuations
  • Bank valuations

Automated Value Modelling

AVMs are a price estimate made by an algorithm that gauge a property’s value based on data about the area the property is located in along with details about the property itself. AVMs are a cheap and fast way of getting an idea of what your property is worth and are useful in their ability to avoid a high-ball or low-balled estimate, due to the algorithm limiting the influence of outliers. However, on their own an AVM is not the most accurate, as it doesn’t take into account a range of other factors that can significantly increase the value of a property- such as renovations, rebuilding and the look and feel of a place. AVMs are often used in addition to other valuations to bolster their accuracy.

Appraisals/Privately ordered valuations

Perhaps the most commonly used and traditional method of gaining an understanding of the value of your property is through the process of hiring a licenced professional to conduct an appraisal or valuation. This involves the physical inspection of a property from the inside out, and an assessment of the following things:

  • Size of the property
  • Property location
  • The number of rooms
  • Fixtures and fittings
  • Vehicle access/garage
  • Recent sales in the area
  • The current market conditions
  • Building upkeep and physical conditions
  • Planning and restrictions/local council zoning
  • Median property prices in the area

Hiring a valuer is probably the most trusted way of getting an accurate idea of what your home is worth, and they will produce a report which you can use in sales negotiations or to procure a loan.

Bank Valuations

Bank valuations are used for the purpose of determining the ‘loan to value ratio’ in a home loan application and will determine the amount of money a bank is willing to lend a home buyer. Banks typically like to see a loan to valuation ratio below 80 percent.

The property in question is the bank’s guarantee that if the loan receiver fails to pay off their mortgage, the bank can take the property and gain back the loss they made on the loan- which is why a valuation is required. Bank valuations are known to be conservative and shouldn’t be used for any other purpose than dealing with mortgages.

This is because the bank wants to protect the chances of a valuation being too high in case the buyer defaults on the loan.

Getting an accurate property valuation is a useful thing to do whether you are buying, selling or wanting to gauge your asset value.