• LoanCaddie

Can you trust your property’s valuation?

Property valuations are an important tool. Not only do they give you an indication of the market value of a property, but they can also determine how much money you are loaned by your lender.

While it’s easy to blindly accept the figure your valuer provides you with, valuations are never one hundred percent accurate.

It’s important that you’re aware of the various factors that can influence a valuation so that you can figure out whether your property’s valuation can really be trusted.

Property valuations only take into account past information

When valuers are conducting a property valuation, factors such as the size of the property, the standard of presentation and the ease of access are considered.

However, the main factor that decides a property’s valuation is an analysis of the historical sales in the area and other market conditions. This is otherwise known as the ‘market approach’.

Since valuations normally only consider past information, this means that future demand and supply is often ignored.

The property market can be unpredictable and is constantly changing, so it is likely that your valuation may not be an accurate indication of how much it will be valued at in the future.

Lenders largely influence a property’s valuation

Valuations are often carried out by your lender. This is because your lender will want to make sure the valuation is impartial and as accurate as possible. After all, they are the ones lending you the money!

Because the valuer is often chosen by the lender, lenders will provide this valuer with their own criteria for valuation. As a result, lenders play a large role in influencing your property valuation.

Property value estimates fluctuate between different providers 

Every provider uses different methods and different information when completing your valuation. As a result, valuations can fluctuate greatly between different providers.

For example, a terrace house that is currently on the market in Redfern was valued between $1,024,000-$1,430,000 million using the website propertyvalue.com.au.

The same property was estimated to be valued between $910,000- $1,190,000 by Domain and was estimated to be valued at $1,200,000 by onthehouse.com.au.

While these quick online valuations are inevitably less accurate than an actual valuation you would pay for, they prove the point that a valuation will differ based on who

is providing it.

Are there limited comparable sales in your area?

Maybe you live in a new suburb or in an area that is not established and does not have much historical information available in relation to sales.

If this is the case, then it is likely that the valuer will need to use their personal judgment to determine the value of your property.

This is a process that can be very subjective and will involve a lot of guessing, and this can lend itself to inaccuracies.

The algorithms used to value property are not human

There has been an increase in the use of computer-generated valuations. However, these computers are not human and experts are worried that consumers are at risk of being provided with unreliable information.

Computers cannot take into account human emotions. Humans think and feel in different ways, so it’s hard to predict how a buyer will react when they encounter a property, and subsequently how much they will offer.

Valuers also have legal obligations

An accredited valuer has the onus of being legally responsible for the valuations they provide to clients.

Because of this, valuers will provide a more conservative value to protect themselves from any future legal action and will be less willing to provide a valuation that is conflated. 

So don’t be disheartened if you receive a valuation that is lower than you anticipated, because there are so many factors that make the trustworthiness of a property valuation trivial.