As time passes, real estate properties appreciate or depreciate in value depending on different factors such as condition, location, surrounding developments, and even the reputation of the developer of the property concerned. This is important to take note of before acquiring a property because ideally, one should invest on a property that would appreciate in value or would return gains in the future. Obviously, no one wants to put their hard-earned money on something that is unprofitable, so it begs the question: how do real estate properties get valued? What is the difference between bank value and market value? How do surrounding developments affect the value of your property? Let's find out!
How banks do property valuations
First things first, banks generally do not decide the value of your property—lenders usually hire a third-party valuer or appraiser to conduct the appraisal. Property valuations are conducted by banks to make sure that they would get their loan amount back if they ever fall on a debt.
Third-party valuation firms are hired by banks to conduct a thorough and complete investigation so that whatever value comes out of it, it would be unbiased. More often than not, bank property values are much lower compared to market values because of its objectivity, lack of emotion, and tendency to be conservative. The valuer will physically assess your property by considering its age, condition, quality of presentation, defects, repairs needed, and a lot more. In addition, the valuer also assesses comparable sales to arrive at a value in which they believe it would sell for at the time being. Thus, bank valuations are always driven by numbers.
How the market affects property values
In contrast to bank values, market values are, more often than not, driven by emotion or even ego. For example, at auctions, there is a tendency where one is willing to pay a high price for something in order to "win" it. There are also times when buyers experience FOMO or "Fear Of Missing Out" and end up paying much more just to acquire a property, even though the "objective" value is much lower. One could also be exhausted of the purchasing hunt, and thus, proceeds to buy it just to finally settle it all for once before other buyers could get ahold. The main idea here is that market value is solely dependent on the buyers and sellers, thus calling it "market" value. Prices are much more different and varied since there is minimal to no objective valuations done.
How surrounding developments affect property values
Usually, developments around the area where the property is standing upon also get factored in the valuation. Objectively, as valuers assess comparable sales, they also look at the surrounding location to compare values of properties before arriving at a final price value. Subjectively, buyers think of how they could get the best deal and experience, whether they are planning to rent/sell the property out or are planning to utilize it as an end-user. This is because location is one of the top considerations when buying a property. Location greatly affects how the property would fare in the market in the long run.
How you can "influence" the value of your property
When you acquire a property, ideally, you have done a lot of research before proceeding with the purchase. So you, as the owner, know the worth of your home. However, it is different when the valuer finally assesses your property.
But before that happens, here are some tips to help increase the value of your property.
- Make sure that your property looks its best when the time comes for the appraiser to conduct the valuation of your home. Simple things such as doing a thorough cleaning, adding fancy furniture, or changing old bulbs can help increase the value of your property. In addition, more complicated things such as painting a fresh coat, doing major repairs, or having your home renovated should also be done before the valuation.
- Highlight why your home is a great buy—land size, floor size, number of rooms, and number of floors are some of the things that you could mention.
- Explain your research. Other things that you could mention are the developments around your area, such as commercial centers that are being constructed or even offices for as sometimes, valuers could be unaware of these.
- Let the valuer know about the important information about your home–particularly hard-to-spot features. It is important to disclose pertinent information and history of your home or even the land surrounding it.
Final say on property valuations
To sum it up, there is no right or wrong when it comes to the valuation of your property. Appraisal is a complicated and long process of assessing, investigating, and finalizing. Various factors play a role in defining the value of your home, and one should do their part by doing research before selling or even buying real estate. And ideally, in the long run, the goal is to boost your real estate returns to make sure you get the bang for your buck.
Sources:
How Do Banks Value A Property? (2018, September 14). Binvested. https://binvested.com.au/how-do-banks-value-a-property/
Mirams, A. (202o, September 18). Bank valuation vs market value – How much is your property worth? Intuitive Finance. https://intuitivefinance.com.au/bank-valuation-vs-market-value-much-property-worth/