The fair market value of a property is usually ascertained by a licensed property valuer. These professionals are trained to assess value based on a variety of factors. This includes the property’s location, size, condition, and recent sales of similar properties in the area.
In Sydney, property valuers who want to be licensed must be registered with the New South Wales Department of Fair Trading. To qualify they must follow strict regulations and guidelines when conducting valuations. They use a range of methods and implement multiple extensive systems to ensure they establish fair market value when assessing valuation reports.
Fair market value can also be influenced by various market conditions. As such, valuations are typically performed at a specific point in time and may need to be updated periodically to reflect changes in the market.
What certifies a property valuer?
In Australia, valuers generally receive their certification from the Australian Property Institute (API) but different certification organisations exists within the various states. They are the leading organisation through which property professionals are certified in Australia. They do require many prerequisites.
Anyone seeking to become a certified property valuer has to acquire a bachelor’s degree in property, land economy or valuations. It takes roughly 3-4 years to complete a bachelor’s in the aforementioned field. They also have to have gained a minimum of 2 years of experience. This is achieved by shadowing a practising licensed professional while they carry out their duties.
The final requisite involves a continuation of their professional development as property valuers. In other words, the ongoing learning and developing of skills in their given area. Some of the extra learning includes self-directed studies, volunteering, and attending conferences. This is what maintains their certification.
Once this process is completed and the individual requirements are met they can apply to become a Certified Practicing Valuer (CPV) with the API. The certification indicates to clients that the property valuer has undergone the necessary education and training of first-rate quality.
How is fair market value calculated?
Valuations are performed on different property genres for varying reasons. You may need a residential property valuer or a commercial valuer but the process remains the same.
The market valuing process involves research, analysis and comparison. More specifically the property valuer would gather data that includes physical attributes such as the location, condition and any special characteristics or features. This can be done by inspecting the property, through surveys, or considering prior reports.
Following this, market analysis has to be conducted. This involves analysing similar local properties recently sold. Market research is compiled to compare sales and rentals, market trends have to be studied and then any unique aspects relating to the property have to be factored in. Next, the market valuation methods have to be surveyed.
One or more of the market valuation methods can be employed. In these instances, it’s common for the cost approach method to be used. This approach works with the assumption of the cost of construction of the building and any depreciating aspects to determine value.
Another method used is the sales comparison method. Property value can be determined by comparing comparable properties while making adjustments according to the differences in the property.
Lastly, the income approach can be used to assess value for income-producing properties. It takes into account the potential or current income the property generates.
Why do you need a fair property valuation?
There are many crucial reasons why one would need an equitable property valuation. Your financial safety is dependent on the accuracy of a fair market valuation. It’s required when selling or buying a property. Being underpaid for your property or overpaying for one can be avoided. That requires you to know the true market value of your asset.
Banks require a valuation of property before they can approve a loan because the value of your home is leverage. If your home or commercial property is undervalued you lose your leverage and a chance at a securing a loan. This can prolong an already taxing situation.
Tax just happens to be another case in which a fair valuation is vital. Your payable tax, such as capital gain tax, is determined in relation to the value of your property or how much income it generates. Similarly, estate planning requires a reliable valuation to ensure everyone gets their predetermined settlement.
However, in this case the matter is substantially more sensitive and tensions can run high. This can minimise the chance of disputes when the time comes for the division of assets. A reliable valuation is also invaluable in legal proceedings, such as divorce or bankruptcy.
Having a fair property assessment actively and proactively insures your financial well-being.
What do you stand to lose with an unfair valuation?
Let’s say you stand to lose more than a “fair” amount with an imprecise valuation.
Your insurance is coverage is based on your valuation. If your house is valued lower, in the case of any emergency you will not be fully covered. This means you’ll have to pay out-of-pocket to rebuild or fix whatever is not covered by your insurance policy.
In addition, a property valued too low is likely to be considered a high risk investment by lenders. Therefore, getting a mortgage or refinancing loan will become significantly harder.
Legal disputes such as divorce settlements and deceased estate settlements are sensitive matters. Therefore, an equitable division of goods can reduce or heavily add to the financial stress that comes with these proceedings.
Lastly, a buyer or seller in a market with a flimsy valuation may have difficulty negotiating fair prices. If the real estate market is overvalued you may be paying more for a property than its true value. That means your expectations of the sale price may be unrealistic. Conversely, if the market’s undervalued you may struggle finding desirable options and a seller may have to accept lower prices.
This can easily be avoided by consulting a licensed profession. Contact us via any of the provided channels and an experienced professional will assist you.