31 January 2020

Can you skip property valuation before buying a new home?

Photo by Brian Babb on Unsplash
Property valuation before buying a new home is necessary for various endeavors, including taxation, property insurance, investment analysis, sales listing, and financing. Lenders usually need an appraisal before finalizing a loan to the buyer after they have accepted an offer, so property valuation is not a typical approach before buying a home. However, getting a property valuation before making an offer can put you in a better position to negotiate since you understand the market value of the property.

Factors to Consider When Conducting Property Valuation

A valuer conducts a written estimate of the market value of the property by considering various factors about the property and the selling prices of other homes in the neighborhood. The property valuation is based partly on its condition, the number of bathrooms and bedrooms, architectural features, and square footage. And then provides with the best house valuation reports in Perth.

Reasons for Property Valuation

Property valuation assists in protecting the lender by ensuring that the value of the loan given to the buyer is not more than the property value; an independent property valuation safeguards your financial interests. Getting a property valuation before you offer your bid enables you to know the value of the property before contracting a legally liaising offer. It can assist you in saving a lot of money if you reduce your offer concerning the property valuation.

Basic Property Valuation Concepts

An accurate property valuation depends on systematic data collection. Precise information, including details about the specific property, and general information about the neighborhood, city, region, and country where the home is located, are gathered and examined to determine a value. Property valuation utilizes three basic concepts to establish the value of a property.

Approach 1: Income Capitalization Concept

It is usually known as the income approach and is grounded on the net income that your home generates and the needed rate of return by the investor. It is utilized to evaluate the value of properties that generate income like shopping centers, office buildings, and apartment complexes. Vautilizing the income approach can be quite honest when the home at hand is anticipated to generate income in the future, and when its costs are steady and predictable.

I consulted property valuers when buying a new home, and they performed the following steps to estimate the value of a home for me:

  • Estimated the potential yearly income of the home
  • Considered the rent collection losses and vacancy to estimate the right gross income.
  • Deducted the annual expenses of operation to determine the yearly net income.
  • Estimated the cost that an investor would offer for the income generated by the specific class and type of home, that was achieved through estimating the rate of capitalization, or rate of return.
  • Used the rate of investment to the yearly net operating income of the property to get an estimate of the value of the property.

Approach 2: Cost Concept

This approach can be utilized to determine the value of a property that has been improved by another or other buildings. The method involves various estimates of value for the subject property, including the land, while considering depreciation. These estimates are summed up to determine the value of the whole improved property. The approach assumes that an ideal buyer will not pay more for an enhanced home than the cost of purchasing an equivalent property or build a comparable building. This concept is helpful when the home being valued is a type that does not commonly sell and does not produce income. Examples of such properties are government buildings, hospitals, and schools.

The cost of building can be estimated in various ways including the quantity survey approach that determines the price and quantity of raw materials required to improve the property and the cost of installation; the unit-in-place approach that estimates costs based on the cost of construction per unit measure of the specific components of building; and the square-foot approach which estimates the cost per square feet and then multiplied by the total square feet of the building.

Approach 3: Sales Comparison Concept

This method is mostly utilized to estimate the value of single-family land and property. The property valuation is based on comparing the subject property with other comparable properties that have been sold recently. To get a valid comparison, the sold property must:

  • Have been sold under comparable market conditions
  • Have been sold within a year in a competitive and open market
  • Be similar to the property at hand as much as possible

The valuer should use at least four comparable properties in the property valuation to get the right estimate.


Accurate property valuation is crucial to sellers, buyers, insurers, investors, and sellers of real estate property. While property valuation is mainly conducted by experienced professionals, anybody involved in property transactions can benefit from getting a general understanding of the various property valuation methods.

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