What is Property Valuation and How to Calculate it?
Property valuation might be a well-known phrase to property investors, and as an expat you might already be aware that there are so many reasons why property valuation is crucial.
But it’s also important to know how to calculate property valuation for many different factors and how valuation is done by valuers.
If you’re not 100% sure how to calculate property valuation or how the professionals do it, this article is what you’ll need.
Find out what property valuation is and how it’s calculated in this article.
What is Property Valuation?
Get a free Australian mortgage assessment today.
Property Valuations: How Are They Calculated?
A property valuation can be done using three methods.
1. The Valuer Can Use Direct Comparison
The direct comparison method involves looking at recent property sales that have taken place within the previous six months. They will make comparisons and look at the similarities and differences between the sold properties and your own investment property.
2. The Valuer Can Use Capitalisation
Using the capitalisation rate is another option that valuers can use to calculate the value of your property. If the property is a small size the capitalisation rate is normally higher, but if you find that the rate is high there are more risks involved with investment.
The capitalisation rate is a formula that is as follows:
Capitalisation rate = net operating income / (divided by) the current market value
Here’s a quick example of how the capitalisation rate is used to calculate the value of your property.
- You find a property you’d like to invest in valued at $400,000
- You want to find out and understand what your return on investment will be
- The property’s net operating income is $50,000
- The capitalisation rate is worked out by dividing the net operating income by the value
- The capitalisation rate is 12.5%
- You notice that your capital expenditure will be $35,000
- The rate is too high, so you may negotiate and offer $350,000
3. The Valuer Can Use Summation
This method involves adding together the land improvement value to the land’s value. Typically, some of the improvements might include adding a garage or a swimming pool, while the value of the land includes the shape of the land and the size, as well as the location of the land.
Property valuations involves analysing several crucial factors:
- The property’s size
- The fixtures of the property
- The property type
- The number of rooms
- How large the land is
- The building’s condition
What Will a Property Valuer Do?
A property valuer in Australia will perform several tasks to determine the market value of a property. These tasks typically include the following.
Inspection: The valuer will visit the property to inspect its condition, layout, and features. This includes both the interior and exterior of the property.
Comparable Sales Analysis: The valuer will analyse recent sales of similar properties in the area to gauge market trends and determine a comparable market value.
Location Assessment: The location of the property is evaluated in terms of its proximity to amenities, public transport, schools, and other factors that can affect its value.
Property Features: The valuer will assess various features of the property, such as the size of the land, the size and condition of the building(s), the number of rooms, and any special features like swimming pools or landscaped gardens.
Market Conditions: The current state of the real estate market is considered, including factors like demand and supply, economic conditions, and interest rates.
Legal Considerations: The valuer will review any legal factors that might affect the property’s value, such as zoning laws, easements, or any restrictions on the use of the property.
Valuation Report: After completing the inspection and analysis, the valuer will compile a detailed report. This report includes their findings, the methods used to determine the value, and the final assessed market value.
These steps ensure that the valuation is thorough and accurate, providing a reliable estimate of the property’s worth.
How Can I Get a Property Valuation?
As an expat, getting a property valuation is important if you plan on returning to Australia and purchasing a property, and you can solicit the services of qualified valuers to carry out the valuation.
Avoid the mistake of asking a real estate agent to carry out a property valuation, as qualified valuers are more accurate with your valuation.
Here are some steps you can follow to get a property valuation in Australia.
Choose a Licensed Valuer: Search for licensed valuers in your area. You can use professional bodies like the Australian Property Institute (API) or the Royal Institution of Chartered Surveyors (RICS) to find qualified professionals.
Request Quotes: Contact a few valuers to request quotes for their services. Compare their fees, services offered, and their experience.
Schedule an Appointment: Once you select a valuer, schedule an appointment for them to visit the property. Ensure you choose a convenient time for you and the valuer.
Prepare Your Property: Before the valuer arrives, ensure your property is clean and accessible. Gather any relevant documents, such as property plans, recent renovations, or improvements, to provide to the valuer.
Conduct the Valuation: During the visit, the valuer will inspect the property, taking notes on its condition, features, and any factors that could influence its value.
Review the Valuation Report: After the inspection, the valuer will prepare a detailed report. This report will include their findings, the methods used to determine the value, and the final assessed market value of the property.
Use the Valuation: Once you receive the valuation report, you can use it for various purposes, such as selling your property, applying for a mortgage, or for tax purposes.
For specific guidance, we can help in connecting with reputable valuers and additional support in the process.
What Factors Do Real Estate Agents Consider During a Property Appraisal?
There are a few key factors that real estate agents consider during a property appraisal. Some of the most important factors, which are similar to those used for property valuation include:
- The property size
- The market conditions
- The land size and the potential for planning new developments
- The current competition
- How easy it is to access the property
- The property’s structure
- Recent sales data
When Should I Get a Property Valuation?
If you want to apply for a home loan or many home loans, this is the optimum time to get a property valuation. The majority of lenders need a property valuation before they approve your home loan application.
Situations when you should get a property valuation are as follows.
Buying a Property: Before purchasing a property, especially if you’re an investor, to ensure you’re paying a fair price.
Selling a Property: To set an appropriate asking price based on current market value.
Refinancing a Mortgage: When refinancing your mortgage, lenders often require a current property valuation to determine the loan amount.
Insurance Purposes: To ensure your property is adequately insured for its current market value.
Taxation Reasons: For capital gains tax, land tax, or other property-related taxes, an accurate valuation can be necessary.
Settling Estates: During the division of assets in estate settlements or divorces, a valuation helps determine the property’s fair market value.
Renovation Planning: Before and after major renovations to assess how the improvements have affected the property’s value.
Financial Planning: For financial planning or investment purposes, knowing your property’s value helps make informed decisions.
Dispute Resolution: In cases of property disputes or legal matters, a professional valuation can provide an objective assessment of value.
Having a property valuation in these scenarios ensures you have an accurate understanding of your property’s worth, which can help in making informed financial decisions.
How is Formal Valuation Different from Property Appraisal?
The critical difference between formal valuation and property appraisals is that local real estate agent valuations are not legal. They should be considered as a guide, as opposed to an accurate portrayal.
Whereas property appraisals are done by a local real estate agent, valuers who are qualified and trained in valuation will carry out a formal valuation to tell you how much the property is worth.
Whereas an appraisal is done for free by real estate agents, you can expect to pay for the services of a valuer.
How Much Does It Cost to Find Out My Property Value?
Property valuation costs can vary depending on several factors, such as the location, size, and complexity of the property, as well as the specific services required.
For a standard residential valuation, you can expect to pay from around AUD 300 to AUD 600 to receive a report of three pages following the visit of the qualified valuer and the valuation process.
For more complex properties, such as large homes, properties with extensive land, or unique features, the cost can be higher, typically between AUD 600 and AUD 1,000.
If the valuation is required by a bank for mortgage purposes, the bank might cover the cost, or it may be included in the loan application fees. Sometimes, the cost can range from AUD 200 to AUD 500.
Some services offer online property valuations for free or for a nominal fee (e.g., AUD 50 to AUD 100), but these are generally less accurate and not suitable for official purposes.
It’s important to get quotes from multiple valuers to compare costs and ensure you are getting a fair price for the service. Additionally, make sure to confirm that the valuer is licensed and reputable to ensure the accuracy and reliability of the valuation.
Which Approach Can I Use to Monitor a Property’s Estimated Value?
Monitoring a property’s estimated value can be done by tracking market trends and recent sales information. Now, there are particular data types that you can use for property value estimation, including:
- The property type
- The trends in local price
- The area of the land of the property
What’s also possible is to get a property value estimate from certain lenders such as National Australia Bank. What they will do is to make use of an AVM, computer generated estimate to give you a ballpark figure of your property’s estimated value.
Investment Property and Property Valuation: Why You Should Get a Professional Valuation
There are a few critical reasons why you should get a professional valuation for your property, including for capital gains tax purposes, finding out how much equity you have in the property if you want to sell the property as an expat, and selling an investment property or buying an investment property.
A professional property valuation is an essential tool for investment property owners. It provides accurate, reliable data that supports informed decision-making, financial planning, and compliance with legal and financial requirements.
Capital Gains Tax When You Sell an Investment Property
If you’re planning to sell a property and want to know its value for capital gains tax purposes, getting a valuation is critical. Now, although you may receive concessions for capital gains taxes, such as the PPOR exemption, the six-month rule, or the CGT 50% discount, you will still need to set your cost base (and the higher the better) for capital gains tax purposes. From 1 July 2027, new legislation replaces the 50% CGT discount with cost-base indexation; residents can still use the discount for gains accrued before that date, and foreign residents generally cannot access it.
So, knowing how to calculate capital gains tax losses if you decide to sell an investment property is important and understanding how a valuation fits into this is also vital.
Calculating Capital Losses with a Cost: How to Do It
If you want to calculate capital losses on a rental property, you’ll need the cost base – which is your valuation (not your appraisal from a real estate agent). You’ll also need to know your capital works cost and the capital proceeds.
You must subtract the capital works from the cost base and subtract the capital proceeds from the reduced cost base.
Here’s a quick example of how to work out if you have made a capital loss using your valuation:
- You have invested in a $400,000 property
- The cost base is $400,000
- You have capital works deductions of $30,000
- You have a reduced cost base of $370,000
- When you sell your property, you receive $365,000
- Your capital loss is $5,000
Calculating Capital Gains: How to Do It
If you want to calculate capital gains tax that you have to pay when you make a capital gain, you will need the valuation to calculate the right amount.
This example will explain how you can calculate it:
- You have invested in a $500,000 property in 1999
- You sell it for $1,000,000 in 2016
- You incur ownership costs of $150,000
- Your rate of income tax is 19%
- The CGT you pay is paid on the difference between the sale and purchase prices, less the ownership costs
- The rate of tax you’ll pay is 19%
- You pay $66,500
Finding Out How Much Equity You Have
You might be thinking about purchasing an investment property in Australia and want to sell your current property there to finance the purchase. Knowing how much equity you’ve got in the current property is important and the best way to do this is with a professional valuation and professional advice.
Buying an Investment Property
Knowing a property’s worth is important and making comparisons to similar properties or comparable properties isn’t always entirely accurate. Getting the market data on the local property market from a valuer can help you know how much the property’s worth.
Getting a Good Understanding of a Deceased Estate’s Value
If you need to get a good understanding of a deceased estate’s value, a valuation can also help you with this. The main purpose of a valuation is to help you understand the fair market value of the property and understand the value of assets.
Property Valuation: An Important Step for Expat Investors in Australian Property
Property valuation is a crucial step for expat investors looking to purchase Australian property, sell a property, understand a deceased estate’s value, find out how much equity they have and calculate capital gains and losses. It’s also important if you’re applying for an expat mortgage or home loan.
Get a valuation of your home to ensure that home loan application is effortless and learn more about investment properties. Go to Odin Mortgage to get the support of expert expat mortgage brokers, make calculations for your borrowing power and calculations for your home loan.
Get a free Australian mortgage assessment today.
What Is Property Valuation And How To Calculate It FAQs
How should I make preparations for a property valuation?
Before qualified experts value your property, make sure access is provided to the property valuer to ensure they can view the entire property. Offer them plans of the building and floor plans to speed the process up. Research your area to understand what the value is likely to be and clean the property thoroughly to get the best valuation.
Who can carry out a property valuation?
Market valuations should be carried out by a registered valuer, someone who is part of a body that carries out professional valuations, or someone who has the formal qualifications and expertise with property valuations.
Are property valuations tax deductible?
In a scenario where you’re purchasing an investment property and have to carry out a valuation of the property, the valuation fees are tax deductible over time. In situations where you are purchasing a property as your principal place of residence, property valuations are not tax deductible.
What is a property valuation report?
A property valuation report certifies the exact market value of the property. It is a kind of legal document that contains a legal description of your property and its land, as well as the enhanced features of the property.
How can I get a property appraisal?
To get a property appraisal in Australia, follow these steps.
- Research and Select an Appraiser: Look for a licensed and reputable property appraiser. You can find qualified professionals through organizations like the Australian Property Institute (API) or by getting recommendations from real estate agents, mortgage brokers, or other property professionals.
- Contact Appraisers for Quotes: Reach out to a few appraisers to request quotes. Compare their fees, services, and experience to ensure you choose the best fit for your needs.
- Schedule an Appointment: Once you’ve selected an appraiser, schedule a convenient time for them to visit your property.
- Prepare Your Property: Ensure your property is clean, tidy, and accessible. Gather any relevant documents, such as property plans, records of recent renovations, or improvements, to provide to the appraiser.
- Conduct the Appraisal: During the visit, the appraiser will inspect the property, noting its condition, features, and any factors that could influence its value. They may also take photographs and measurements.
- Provide Additional Information: Be prepared to answer any questions the appraiser may have about the property, such as its history, previous sales, and any unique features.
- Receive the Appraisal Report: After the inspection, the appraiser will prepare a detailed report. This report will include their findings, the methods used to determine the value, and the final assessed market value of the property.
- Utilise the Appraisal: Once you receive the appraisal report, you can use it for various purposes, such as selling your property, applying for a mortgage, refinancing, or for tax purposes.
For additional assistance, especially if you are an Australian expat, we can provide guidance and connect you with reputable appraisers to ensure a smooth appraisal process.
See What You Qualify For
Get Immediate Insights on Your Mortgage Eligibility Discover your mortgage eligibility instantly"*" indicates required fields
