Investment tip: The importance of independent property valuations

• Size of the land and building
• Location of the property
• Number and type of rooms
• Fixtures and fittings
• Building structure and condition
• Details of immediate issues/areas of improvement
• Planning, restrictions and local council zoning
• Comparative sales in the area

As an accurate valuation is a good negotiation tool and a necessity when applying for a home loan, investors usually pay most attention to the process when purchasing the asset and obtaining a mortgage. However, valuations can also be useful in many different ways throughout the time that the investor opts to hold the property.

For instance, independent valuations not only informs you of the actual market value of the property, but as well as its potential rent rate and market risk score. Valuation reports may also include photographs of the property, which could be sound references for routine building inspections.

Property valuations done regularly can also help investors refinance into better mortgage products or deals and set a competitive rent rate in line with market rates.

According to Opteon Solutions Sally Dale: “The goal in property investment, in general, is to secure assets which are going to grow in value over time. Hopefully, they won’t cost you too much to hold as they are generating a rental return.”

“Every property investor must always think about valuations—what's my property worth? That could be on the basis of looking to refinance or sell down or realise some equity that you might have in that property,” she said.

Ultimately, regular independent valuations can assist investors in maximising the earning potential of their real estate assets.

“Valuation is key, especially in a softening market,” the valuation expert highlighted.

Peace of mind

According to Ms Dale, investors usually get independent valuations when buying or selling a property, or even when they simply want an updated insight on their portfolio’s worth and have some 'peace of mind'.

When purchasing properties, for instance, real estate agents are often the first ones to relay the value of the property. However, at the end of the day, these professionals are working in the best interest of the vendor.

Investors may find it more comforting to have a second, unbiased opinion on the true worth of the asset.

Having this knowledge from an independent valuation can help investors not only in negotiating the purchase price but also in gauging and ultimately identifying the home loan products and features that they could be eligible to.

Ms Dale explained: “That’s a good point when you're negotiating for a property as an investor. Often, you don't know whether or not the valuation or the contract price of the property is going to hold up when the bank values it, so you could find yourself in negative territory and they'll lend you a lot less money.”

“You can actually get your own independent valuer to give a valuation of a property before you sign a contract to avoid surprises like that. It's going to give you peace of mind that the valuation that you get prior to purchase should be consistent with the valuation you get subsequent to the purchase when the lender gets a valuation,” she added.

Being able to determine the current value of your property at any given time will be vital to setting a rental rate in line with market rates and ultimately achieving a significant return on investment.

Finding a good valuer

As in choosing any member of one’s investment team, picking a property valuer is totally up to the investor. Since their services will incur additional costs, it’s worth taking the time to do research in order to make sure that they will be worth their weight in gold.

The investor’s accountant, property manager or buyer’s agent may refer valuers they have worked with in the past, or investors could go online and shop around. Whichever process you choose, make sure that the valuer is experienced, truthful and reliable, just like other members of your team.

There will be different criteria for every investor depending on their needs, but according to Ms Dale, one of the most important requirements for good property valuer is their membership to the Australian Property Institute, the professional industry body for residential, commercial and plant and machinery valuers, analysts, fund managers and property lawyers.

In some cases, valuers may be required to register with other regulating bodies, as in Western Australia and Queensland where valuers should be registered with the state government.

The valuation expert highlighted: “Valuation is risky so you want to make sure someone's got their professional indemnity insurance.”

Making sure that your valuer is compliant to rules and regulations will help you achieve desired results while avoiding any stressful and costly mishaps along the way.

At the end of the day, it’s worth looking into engaging property professionals throughout your investment journey in order to make the right decisions and ultimately maximise the earning potential of your portfolio over time.

Tune in to Sally Dale's episode on The Smart Property Investment Show to know more about the processes involved in property valuation.