{"id":159070,"date":"2024-04-23T15:30:31","date_gmt":"2024-04-23T05:30:31","guid":{"rendered":"https:\/\/propertyupdate.com.au\/?p=159070"},"modified":"2024-03-26T14:17:40","modified_gmt":"2024-03-26T03:17:40","slug":"why-valuations-are-about-more-than-just-a-figure","status":"publish","type":"post","link":"https:\/\/propertyupdate.com.au\/why-valuations-are-about-more-than-just-a-figure\/","title":{"rendered":"Why valuations are about more than just a figure"},"content":{"rendered":"

Arranging for a property valuation prior to purchase, or a valuation on a property you already own for refinancing is relatively straightforward.<\/p>\n

That said, it\u2019s important to understand potential pitfalls associated with a valuation so you can brace for a possibly unfavourable outcome.<\/p>\n

If you are applying for a loan from a bank, they will normally commission a valuation and rely on its findings when deciding whether to lend the amount requested.<\/p>\n

What you may not know is that the valuer reports provide the bank with much more than just a figure.<\/p>\n

Certain elements within the report other than the valuation number can affect the outcome of your application.<\/p>\n

\"Valuation\"<\/p>\n

Valuation vs. appraisal<\/span><\/h2>\n

Before we dig in, let\u2019s get this fundamental straight.<\/p>\n

A valuation is different from an appraisal.

<\/div><\/p>\n

An appraisal is an assessment done by a selling agent to give an indication of what the property could sell for on the open market.<\/p>\n

It\u2019s usually based on only a few variables \u2013 the main one is recent comparable sales in the area, followed by the condition of the property, and then the number of buyers making active inquiries for similar properties, and finally, the agent\u2019s expertise.<\/p>\n

A valuation done by a qualified valuer (who has completed a university degree) incorporates a vast array of variables and can result in a different figure than the appraisal (it almost always is a lower figure than the appraisal).<\/p>\n

A valuation is based on things like the land value, improvements done to the property, town planning considerations, and an analysis of the property\u2019s layout (living areas vs bedrooms vs outdoor areas and car spaces).<\/p>\n

But it also contains a number of other professional observations about your property\u2019s suitability as security for a loan.<\/p>\n

A Valuer\u2019s role is to ascertain your property\u2019s \u201cFair Market Value\u201d.<\/p>\n

It\u2019s important to understand this as it\u2019s one of the most common things that people query.<\/p>\n

It\u2019s what it \u201ccould\u201d sell for but more likely based on the market at the time, what it \u201cwould\u201d sell for in the case that the bank had to realise the asset.<\/p>\n

Risk Ratings<\/span><\/h2>\n

A big part of the valuation process includes risk ratings, which the bank relies on as part of its decision-making process.<\/p>\n

Even if you get a good valuation figure, you may still not be approved for the loan if the risk rating is too high for the bank\u2019s appetite.<\/p>\n

Simply put, risk ratings are how the bank determines the level of risk attached to lending against a particular property.<\/p>\n

Risk ratings are ranked from 1 (low) through to 5 (high risk).<\/p>\n

Depending on how risk-averse your lender is, a rating of 4 or 5 is unlikely to result in a green light on your loan application.<\/p>\n

Risk ratings are based on factors that include:<\/p>\n

Location<\/b><\/p>\n

If the property is situated on a busy road, or beside a noisy facility (eg a train station, or industrial factory that makes noise) this is going to result in a higher risk rating. It doesn\u2019t matter how stunning the property is, a poor location will negatively impact the risk rating it receives.<\/p>\n

Land<\/b><\/p>\n

What size is the block and how much additional space around the house is there?<\/p>\n

How is its topography or drainage a challenge?<\/p>\n

Is it usable and appealing as a site?<\/p>\n

These will affect risk ratings.<\/p>\n

\"Risk\"<\/p>\n

Environmental issues<\/b><\/p>\n

Is the property in a bushfire risk zone, or are there flood risks, in some areas powerlines could be an issue, or telephone towers \u2013 these all impact the valuation and its risk rating.<\/p>\n

Improvements<\/b><\/p>\n

Has the property been well maintained?<\/p>\n

Are there renovations that have added value?<\/p>\n

Is it falling apart?<\/p>\n

If so, this could indicate that the property may also have underlying issues that similarly haven\u2019t been taken care of and this could be a red flag for lenders.<\/p>\n

Expected reduced value in the next 2-3 years<\/b><\/p>\n

Lenders always want to know which way the wind is blowing when it comes to the market and if the property might fall in value in the next few years.<\/p>\n

This would need to be factored into the lending decision and how much to lend.<\/p>\n

Market for the area<\/b><\/p>\n

What is the economy doing locally?<\/p>\n

How is the market performing?<\/p>\n

In a falling market, lenders tend to take a conservative approach and either reduce the amount they loan to customers or scale back their exposure to home loans in that area.<\/p>\n

Market segment conditions<\/b><\/p>\n

How would this property fare on the market if it was necessary to sell quickly?<\/p>\n

If the property is unusual or falls outside the mainstream, or is perhaps in the top five per cent of properties in that area, or is not similar to the bulk of properties sold in that area, the lender may balk, or have reservations.<\/p>\n

Volatility<\/b><\/p>\n

Similar to looking at the market microcosm, volatility is a red flag to lenders.<\/p>\n

This tends to be low-volume areas where sales turnover is low and the market can be volatile.<\/p>\n

It\u2019s harder to get a loan to buy here as risk factors are higher.<\/p>\n

\"Business<\/p>\n

Improving your chances<\/span><\/h2>\n

Understanding the role that risks ratings play in your property valuation, it makes sense to get your own valuation done ahead of submitting a loan application.<\/p>\n

This will help you avoid disappointment (and unnecessary rejections that may impact your credit rating).<\/p>\n

Risk rating might also reveal actions you can take to make your home a more appealing option in terms of risks.<\/p>\n

Maybe it\u2019s time to attend to major maintenance, or complete that bathroom and kitchen upgrade you started months ago?<\/p>\n

Also, understanding what goes into a higher risk rating will help you avoid these properties when making your shortlist of properties to purchase, whether as an investment or as a principal place of residence.<\/p>\n

<\/div>\r\n
<\/div>\n","protected":false},"excerpt":{"rendered":"

Arranging for a property valuation prior to purchase, or a valuation on a property you already own for refinancing is relatively straightforward. That said, it\u2019s important to understand potential pitfalls associated with a valuation so you can brace for a possibly unfavourable outcome. If you are applying for a loan from a bank, they will…<\/p>\n","protected":false},"author":46,"featured_media":154194,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[54,3],"tags":[],"class_list":["post-159070","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-latest-property-updates","category-property-investment"],"acf":[],"yoast_head":"\nWhy valuations are about more than just a figure<\/title>\n<meta name=\"description\" content=\"Arranging for a property valuation prior to purchase, or a valuation on a property you already own for refinancing is relatively straightforward. 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