The recent pandemic has made a lot of people think about their lives and how they’re living them. This in turn has caused a lot of fluctuation in the property market as people are moving to areas that better suit the lives they want to live.
If you’ve been considering your options, it’s crucial that you understand the information that’s being given to you, and how relevant it is. You’ll also have found that sometimes terms that you thought meant the same thing as each other actually mean something slightly, and crucially, different. One example is the difference between a property appraisal and a property valuation, and how little those two things can have to do with each other.
So what is the difference? And what are they each used for?
What is a property valuation?
A property valuation is a formal report completed by a certified professional (generally a certified practising valuer) that determines the value of the property. This tends to ignore a lot of aesthetic or ‘personal’ factors that may influence how much someone is willing to pay for the property, like an established garden or a flatscreen TV in the bathroom. This is based on not only the property itself, such as the size and features of the property itself, but also other factors such as location. But this isn’t just where it is on the street or how close it is to the shops, but also things like access to the property or how the property is zoned. This is more of a commercial, rather than a personal, evaluation of what a property is worth. Broader civic or zoning issues like this form part of the risk rating.
Risk rating refers to the risk the bank has to consider if it’s lending for that property. There is no point in having your house as collateral on a loan if it’s likely to be swept away in the next flood or lost in the next bushfire.
Property valuations, as official valuations, can also be used for non-sales purposes such as valuation as part of a legal settlement or deceased estate settlement.
What is a property appraisal?
A property appraisal, on the other hand, is far less formal. It’s basically a real estate agent’s estimation of what your property might sell for based on factors the estate agent is familiar with, such as location, age and the features/size of the property itself. It may also consider aesthetic or personal factors based on the kind of person who’s likely to buy the property. For example, a young family or couple with a dog might value an enclosed front and back yard more than an executive couple with no pets.
In this way, a property appraisal is less of an offer to get you that much for your property than it is a conversation about what it might be worth if you were to put it on the market soon. Typically appraisals are given relevant to the sales in the area within the last 3–6 months, which means that the appraisal itself is only good for as long.
So does that mean an appraisal is useless? Not necessarily. It can be a good way of getting a feel for the kind of price that someone thinks that they could sell your property for. They’re often free and can be quickly arranged as well, which if you’re looking to sell is very convenient. If you’re looking to buy, however, you will most likely need a property valuation performed as the bank won’t lend to you unless they know what the property is actually worth, not just what someone wants to sell it for. Of course, there may be situations where a bank isn’t involved, which means that you might be getting more for your property based on what the real estate agent can sell it for rather than what a valuer might put their name to.
So while these are both different measures for different features of a property, ultimately they both have their place. A property appraisal is a quick and dirty idea of what your property might sell for, whereas a property valuation is a more formal idea of ‘official’ value, devoid of those personalising factors. Which one do you need? It will depend on what you want it for. If you’re selling, probably an appraisal. If you’re buying, most likely a valuation.
