A common source of confusion among property investors revolves around the difference between a market appraisal and a valuation.
Each report focuses on the worth of a property. They’re popular with investors who’ve chosen to cash out or are planning to sell and upgrade rather than expand the number of properties in their portfolio.
Let’s look at the market appraisal first. Real estate agents create these reports to either encourage you to sell, or as part of their pitch when you interview them about selling your property.
An appraisal is typically a printed report that identifies your property’s style and features including the type of building material, land size and number of bedrooms, bathrooms and car spaces etc, and compares it with similar, recently sold homes.
It combines that information with local market knowledge and arrives at a price range that the agent believes could be achieved using their recommended marketing methods.
Price ranges in a market appraisal can vary depending on the agent and the properties they have used to compare with yours.
The bottom line is that an appraisal is an estimate – the best assessment of a professional – that will be influenced by the agent’s actual negotiating skills, marketing budget and the prevailing dynamics of the market at the time of sale.
The second report, a Valuation, is usually written by a valuer on behalf of a lender. The valuer may physically inspect the property to ascertain its condition or complete what’s known as a desk-top or automated valuation. They then use powerful algorithms to collect a range of property and economic data to determine its value.
In this scenario, value represents the amount a bank might lend against a property based on a 20% deposit. The conclusion of an Automated Valuation will most certainly be lower in estimation than an agent’s price range.
It might also vary from bank to bank, depending on each institution’s risk and lending criteria. It’s fair to assume the figure in an valuation will be the rock-bottom price you might expect.
A valuation is a good sanity check of the agent’s estimate, however. If the property sells for way above the valuation without a seemingly plausible explanation, your buyer might have trouble getting support from their bank.
This article is provided for general information only and does not take into account the specific needs, objectives or circumstances of the reader. Before acting on any information, you should consider whether it is appropriate for your personal circumstances, carry out your own research and seek professional advice.