Property Valuation vs Appraisal: What’s the Difference?

Whether you are planning your next move or renovating, it is essential to know how much your property is worth – even if it is out of curiosity. As your home is likely to be your most valuable asset, tracking its performance is always beneficial. It not only provides an insight into your financial position but could also unlock potential for buying an investment property or upgrading to something more suitable.

A property valuation and a property appraisal may sound similar, but they are different. In this guide, we will delve a bit deeper into understanding the distinction between the two and how they serve different purposes. This information will allow you to make important decisions about the property with confidence.

What is a property valuation?

A property valuation is a formal, independent assessment conducted by a certified valuer and is often required for lending, legal or taxation purposes. As the information can be relied upon by courts, the government authorities and other parties, the assessment must be carried out by a qualified professional.

A valuation is intended to be objective and supported by market evidence and tends to generally be conservative.. It does not factor in competition or if buyers are willing to pay a premium.

They will look at:

• Location and land size

• Home features such as a pool or new bathrooms

• Building condition and structure

• Planning restrictions and council zoning

• Ease of access and aspect

Valuations have become standard as part of a home loan application or refinancing. Lenders use it to calculate whether the property provides sufficient security for the amount being borrowed.

They are also used for capital gains tax, deceased estates, divorce settlements, insurance and pre-purchase advice.

What is a property appraisal?

Real estate agents are experts in answering the question ‘how much is my worth’, and they do this by carrying out what is known as a ‘property appraisal’.

They will research comparative market analysis, looking at what similar homes in your neighbourhood have fetched over the past 90 days.

This can be tricky in a tightly held area where there have been very few transactions, or if the property is unique with no comparable sales. An experienced agent will consider things such as:

• Property size and number of rooms

• Building structure and condition

• Areas for improvement

• Current competition for homes

• Wider market trends

A property appraisal is often the first step if you are considering selling your home. The agent may also include suggestions on how you can improve the value of the property, such as simple updates or staging ideas.

You can also find everything you need to know about the property appraisal process through LJ Hooker.

Desktop valuation vs bank valuation vs agent appraisal

Desktop valuations can provide a rough idea of a property’s value, but don’t account for any unique features, conditions or recent market activity, as the property is not physically sighted.

Homeowners can also access several automated valuation tools online. These are excellent for gaining an estimate but should only be considered as a quick and helpful benchmark. You can find these on popular real estate portals such as realestate.com.au and Domain.com.au.

Bank valuations are a more formal assessment, primarily used by lenders. The purpose is to independently confirm a property’s value and check that there is sufficient security for the loan. It is a good idea if you are checking if there is any available equity in your property.

A good way to understand what your home could achieve in today’s market by organising an appraisal. A local real estate agent can inspect your property in person and provide an estimate based on current market conditions, recent sales and buyer demand.

Key differences between valuation and appraisal

Which one do you need?

Selling, refinancing or buying, it is important to know whether a property valuation or a property appraisal is the most appropriate option. Let’s look at some common scenarios:

Case study 1: Buying a home or investment property

A valuation is used by lenders as a safeguard measure to ensure they can recoup the full loan amount in the event of a forced sale. It can also protect you from overpaying.

Case study 2: Considering selling your home

A property appraisal is the first step in selling your home. Ideally, you should obtain an estimate from three different agents to give you a price guide range. If an appraisal sounds too good to be true, it may well be, as some agents may inflate their estimate to win business. Ensure you understand how the agent came to their expected price, such as recent comparable sales.

Case study 3: Looking to refinance your mortgage

A bank valuation will be required if you want to refinance your existing home loan to release money to use as a deposit on another property. You will also need a property appraisal before selling your home, so you have an idea of how much it may fetch in the current market.

Case study 4: Understanding your tax obligations on an investment property

A property valuation can help you to plan for expenses such as capital gains tax, stamp duty or land tax. A property appraisal will allow you to see how much growth you’ve achieved if you are considering selling.

How much does a property valuation cost?

As a valuation is a formal and legal assessment of your property’s worth by a certified professional, there are fees attached. The report must meet strict regulatory standards and can be used in bank lending, refinancing, taxation or legal disputes.

A valuation can be relied upon by lenders, courts, government authorities and financial institutions.

The cost of a property valuation is dependent on the size of the home, location, complexity and purpose. Prices typically vary from $300 to $650.

It can also depend on the type of valuation:

• Desktop valuation – Based on documentation without physically seeing the property.

• Restricted assessment – Based on documentation with an external inspection of the property, such as from the street.

• Physical inspection – Based on the physical inspection of the property and limited enquiries.

• Full variation – Based on physical inspection and all relevant information.

Look to see if the valuer is a full member of the Australian Valuers Institution, a full member of the Australian Property Institute and a full member of the Royal Institution of Chartered Surveyors.

These organisations can also put you in touch with finding the right certified valuer for your property.

Are property appraisals accurate?

Determining a property’s worth is a complex process and requires understanding local market performance as well as the broader economy.

A property appraisal is an educated market estimate backed by the latest available data. It will compare your home with results achieved within 90 days, as well as a summary of wider property trends. You can find more information on the process here.

Most homes sell within the price range provided by their real estate agent. Sometimes they will do better, depending if there has been enough competition generated.

But property values can shift quickly as buyer demand, interest rates and market conditions change. So, if it has been a while since your appraisal and you are ready to list, it is important to check if the price guide is still applicable.

Home values can be influenced by supply, demand, population growth and even Government incentives. This can cause the market to fluctuate, which can have a significant bearing on real estate values. It is not uncommon to hear the terms - a seller’s or buyer’s market – and either will increase or decrease the perceived value of your home.

So it is key to bear in mind that an appraisal reflects the market at a specific point in time and should be used as a guide.

A professional real estate agent will factor all of the elements looked at by a valuer but also will also include what they are hearing and seeing at open inspections.

A property appraisal also comes with other added benefits than just a dollar figure. It will determine the best strategy in the current market, such as whether you should opt for an auction, private treaty or an Expressions of Interest campaign. It will highlight areas that could be updated for little cost and improve presentation and lead to a better result.

Pros and cons of valuations vs appraisals

Valuations or an appraisal both serve a purpose when trying to work out what your home may be worth. The right choice depends on your needs.

Pros of a property valuation:

• A property valuer is not associated with any real estate agency

• There is transparency in the report with evidence and methodology

• Can help to avoid risks or overpaying for a property

Cons of a property valuation:

• You have to pay for a valuation

• The value can be conservative in nature

• It doesn’t factor in a target marketing campaign or buyer competition

Pros of a property appraisal:

• It is free of charge and conducted by a professional real estate agent

• It is a great introduction to real estate agents working in your area

• It can help to determine a marketing strategy for a successful sale

Cons of a property appraisal:

• Some agents may be biased and inflate their price to win the business

• There is no legal standing for a property appraisal

• You can’t use it for mortgage applications or refinancing

Why a local agent appraisal matters

A local agent can make a significant difference in the accuracy and usefulness of the advice you receive in a property appraisal. After all, there is no point in having someone conduct a review of your property if most of their work is in a completely different area.

You want a local expert who knows your market, recent sales and importantly, who is on the ground talking with people who are looking to purchase in your suburb. Often, they will also have a database of genuine buyers, which could lead to a quick sale.

When assessing your property, local agents will also be able to compare it to competing properties. They can provide guidance on home styling, presentation and creating a positive first impression that can help to maximise interest. You can find out more information on why styling to sell is important here.

Local knowledge is just one of several important qualities you should consider when choosing a real estate agent to sell your property.  You can find out more here.

Get an accurate property appraisal with your local LJ Hooker agent

A property appraisal through LJ Hooker is quick and straightforward to organise and obligation-free. There is no need to frantically tidy your property before an appraisal. Our agents are experienced and can see through everyday clutter when assessing your home. They know what type of features and staging can widen your potential pool of buyers and will make suggestions according to your budget.

If you are time poor, you can also arrange a virtual appraisal. This is simply a video call where you take an agent through a walkthrough, much like if they were physically in your home. You can find more information here.

 Take time to research the market and align yourself with experts who can provide the right professional advice. Book in for a property appraisal from your local LJ Hooker agent here.