VALUATION IS A SKILL

Bank wants to be sure of the worth of the home they’re investing in

OUTSIDE of the lucky few with (hard-earned) money in the bank, for the vast majority of us, finance from a financial institution will play a big part in our home or investment property purchase.

And almost invariably, that finance will be dependent on a bank valuation.

What exactly is the point of a bank valuation, you might ask? After all, you know the price – it’s the numbers written on the contract that everyone signed!

Well, yes and no. It’s not quite that simple. In exchange for the money your bank is going to hand over, they are going to take a security in your home. As a result, they want to make absolutely sure (or as close as they can) that should the worst occur, that home they’re investing in with you is going to deliver them their money back.

When a bank wants to know what a property is worth, they call in an outside expert – a registered valuer. Differing from a real estate agent, a valuer doesn’t sell property; they just determine its market value, doing so with acquired knowledge and the skills obtained through a three-year bachelor degree (contrast this with the admittedly basic formal qualifications of a real estate agent, which can be completed within a week).

The valuer will complete an objective assessment, considering the age and style of the home, the size and method of construction, the physical cosmetic condition, current market activity and any opportunities or threats to the market on the horizon.

Where a contract of sale has been signed, this will generally be assumed as the default position, but the valuer must justify that value (or otherwise) before a bank will accept it as fact.

In a steady market with little to no change in activity, valuations tend to be fairly simple. In a changing market like what we are currently experiencing, there can be somewhat of a lag in timing as properties increase in value, but don’t have previous market evidence to support it. In those cases, we unfortunately see the odd sale fall over, though over time this becomes less of an issue as knowledge catches up to the market or valuers adjust their methodology.

So are you getting a valuation on your own home? Treat it like you’re prepping for an open home – clean, tidy and polished. A better presented property will get a better result, just like when it’s time for a sale.