How do property valuers determine their valuations?

By Fornaro | 10 March 2023

When you find a property you want to purchase, there are a lot of things to consider – from building inspections and pest reports to securing a loan.  

One other very important thing to consider is the valuation, particularly if you’re going to buy at auction. So how is a property’s value determined?

What is a valuation used for?

Whenever you want to borrow money to purchase a property, the lender will engage a professional valuer to give them an independent assessment of the property’s worth. This valuation helps to determine how much money the lender is prepared to lend you.  

Valuations are also important if you want to assess the equity you have in your home. With refinancing, equity can be used to make other purchases like investment properties, other types of investments and home improvements.

Why are valuations so important?

A valuation is important if you are considering purchasing at auction as it can assist you set your purchase price limit and remove some of the emotional bidding that can occur. If you bid over your cap for a property, there may be a gap between what you have agreed to pay and what you can borrow based on the independently assessed value determined by the lender’s valuer and/or your own borrowing capacity restraints.

To obtain a valuation, you can employ an independent valuer, or source one through your selected lender.  

Alternatively, Fornaro often has access to similar information that a professional valuer does through our property platforms, so be sure to ask Fornaro for a property report on any property you are considering purchasing.

What methods do professional valuers use? 

There are two main methods professional valuers use to make a valuation.  

1. Direct comparison: 

• Valuers research recent sales of similar properties in your area within the last six months. 
• Use the comparison properties as a valuation guide. 
• Make adjustments up or down if there are any material differences between the properties. 

2. Summation method: 

• Valuers determine the land value based on considerations such as size, shape, location, views and surrounding infrastructure. 
• Determine the value of improvements on the land such as a house, considering the age, style, architectural features and overall appearance. 
• Add the two values together to arrive at an accurate valuation. 

Most professional property valuation companies use a combination of these two methods.

What’s involved with the valuation process?

Firstly, the valuations company will send an assessor to inspect the property. 

Your property valuer will then undertake extensive background research on your local property market. Valuers have access to software and market data which allows them to compare the sales data of similar properties over the past six months. 

Finally, the property valuer will produce a written report – usually within 48 hours of making the inspection.

Next steps 

If you’re ready to start your hunt for a new home or investment property, or if you’d like to know more about property valuations, please get in touch with us today.