Valuation refers to the estimation of the value of a property at a particular time based on the
market and sales price of similar property as well as the description of the property in
question. This process is carried out by a professional valuer who produces a detailed report
of the findings of the valuation.
There are several reasons why a property might need to be valued and these include;
● For selling and buying process
● For renting out the property
● For property taxation purpose
● To get property financing
● When transferring the property
● When a property is being auctioned
● Property Insurance
To get more information on the valuation process, Melbourne’s best residential property valuers
have prepared a list of 5 things you must know about the cost of valuation.
Before looking at how a property can be valued, we must first find out where valuers get the
data they use to determine the value of your property. For the most part, the most correct
database is the Multi Listing Service (MLS) which contains details of all property sold, their
description, and the location they occupy.
With this in mind, let us examine the different methods of valuation to find out how they
affect the cost of a valuation.
The Comparison Method
This is where similar properties of the same style such as condos, duplexes, or main houses
are valued to determine the market price. This method is effective because of its simplicity in
providing accurate valuation reports.
For it to be effective, it has to look at;
● The Location; the properties must be within a 2-mile radius within the same
neighborhood.
● Its physical condition; the properties are required to have a similar number of
amenities, bedrooms, bathrooms, and other physical conditions. The properties
should also be sitting on a similar size of land.
● The Contracts; For the comparison method to be effective, the properties in question
should have similar leasing contracts.
● The Time Frame; The properties being compared should have been sold within a
period of fewer than 6 months for the valuation to be effective.
This method will provide the most authentic results,,, especially in places where the markets
are highly competitive and at a time when the economic conditions are stable.
Cost Approach
This evaluation method is a bit different from the comparison method. It looks at the cost a
buyer would incur if a similar property would be built from the ground up. This means that the
cost of the property is equal to the cost of land the property is on, all the material used to
build the property less the depreciation of the property in case it is old.
The cost approach looks to debate why a buyer would need to pay more for a property if
they could incur less cost constructing a replica from scratch.
Although this method can be incompatible in some markets, it can be useful in several
circumstances as listed below;
● New constructions that depend on financing from lenders
● Special buildings such as schools, hospitals, or libraries that might not have close
replicas to compare with
● Insurance purposes that require the property’s construction costs to appraise the
value for its insurance
● Commercial properties that hold complexity to be compared with other buildings
Discounted Cash Flow Approach
This method refers to the valuation of a property in regards to the perceived cash flow it is
expected to generate in the future. For rental property such as office complexes and
commercial residential, this method becomes more useful as it allows valuers to get what the
property is worth with future projections.
To understand how this method works, imagine a residential property situated near a public
transport system that is being constructed. Although currency, the value of the property is
lower, the seller prospects an increase with the completion of the transport system. This
implies that when the system is completed, people are more likely to take up rental space
inside the residential property to take advantage of the functioning public transport.
Although this method could be useful especially in a growing city, it only depends on
speculation which makes it unreliable.
After looking at these methods of valuation, we can confidently establish the cost of having
each for your property. The comparison method, being the simplest, can be even done with a
real estate agent making it affordable or free. The cost and the discounted cash flow
methods are a bit challenging as they involve complex calculations and can only be done by
a professional.
When considering to value your property, it is important to have in mind your goal and the
type of property you have. This will enable you to have an estimation of how much you
would be charged for the evaluation.
