Residential Property Valuation-D.I.Y!
When buying a property the biggest concern is……are you paying too much? Here are some tips from the expert team at JDMA Property Valuations to guide you down the right DIY path.
Property Valuers earn their keep by valuing properties, so these expert tips are ‘gold’.
Market analysis, comparison, relevant sales data it sounds complicated, but here’s some basic Property Valuation tips to help demystify the process.
1. Know Your Suburb
Professional Valuers know their suburbs, but you can too. Find out everything about the suburb. Talk to local real estate agents. Check with local council websites for future infrastructure plans. Attend open houses and auctions. Get a feel for types of properties and and what prices are being paid. Start in the “Sold” section of online real estate sites for a broad feel for the market.
When you locate a property here’s two Valuation methods that professionals use;
2. Method 1 – Market Comparison Method
The Market Comparison Method determines the value of a property from comparable property transactions in the surrounding area. This is the basis of all residential valuation theory.
Valuers compare the subject property with local properties that have recently sold, evaluating quality,size, land and features.
DIY: Monitor sold properties by driving round the suburb. Get a drive-by feel for the size, location, views, street appeal and neighbourhood as well as improvements like pool, landscaping, fencing & sheds. Then, check property sale websites for property photos and when it was listed for sale. ‘Suburb Sales Reports’ can be purchased, with address, sale date & price.
3. Method 2 – Summation Method
This is a check method only, to support the Market Comparison Method….where the property is valued by adding together the land, house and ancillary improvements.
Establish the ‘site value’ of the land, (Unimproved Land Value) by comparing other vacant land sales in the area. Apply a rate per square metre to the dwelling (based on the quality of fixtures & features).
Finally, the ancillary improvements (pool, landscaping, fencing, sheds etc.) are apportioned a value.
By adding the site value / the building amount / the ancillary improvements, a value is established and the total is then analysed, by comparing the property with confirmed sales in the area.
Heads up! The dwelling ‘replacement cost’ may be quite different to the value apportioned to the current dwelling. The ‘replacement cost’ is the cost to rebuild the property, including Architect’s and planning fees, demolishing and removal costs to name a few. A large, rundown house may be valued at only $300,000 but, to rebuild to that size, may cost up to $500,000.
4. Has the property been overcapitalised?
Check to see! Is it the most expensive house in the suburb? Are other houses in the suburb of similar quality?
Don’t pay for someone else’s overcapitalisation. It will be evident as the sales data won’t support a higher value. If expensive renovations don’t complement the rest of the house, or is unusual for the area, then it probably won’t add value.
5. Location, setting, position.
The property might be in a good suburb, but positional factors can affect value & capital growth. Is it on a busy road, or close to power lines? It’s good to be close to shops & schools…. but not ‘too close’.
“Are you paying too much?
6. Consult Professionals
Consulting specialists will minimise your risk and maximise your profit when investing in property. A building & pest inspector, conveyancing solicitor and good accountant are essential. If the property’s an investment, engage a quantity surveyor for a tax depreciation schedule to minimise your tax.
These steps provide a good indication of a property’s worth. Remember, stay objective through your valuation process.
If in doubt, an Independent Property Valuation will combine all the steps above, provide a formal property valuation and give you the confidence to take the next step