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?

Property valuation refers to the process of creating a detailed report that represents a property’s market value. The report typically contains details on the property’s size and the condition of the property.

What is Property Valuation and How to Calculate it

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Property valuations: how are they calculated?

A property valuation can be done using three methods:

1. A 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. A 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 is Property Valuation and How to Calculate it

What will a property valuer do?

A few key steps are involved. A valuer will measure your building, meaning they will go to the property that’s being valued to analyse the building’s condition. They will compare a property with recent sales to calculate an approximate figure. All structural faults are noted and are included in the valuation report. They will note how many bedrooms and living spaces the property has and take photos with a date and time stamp for the report.

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.

How can I get a property appraisal?

A local real estate agent has the expertise for carrying out a comparative market analysis; they can give you all the details on wider market trends and current market values. With all the information they will create a detailed report and calculate an estimated value of your property worth.

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
What is Property Valuation and How to Calculate it?

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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. There are other situations when you should get a property valuation as well. If you are going through a family settlement for the purposes of capital gains tax, a property valuation is crucial, giving you a definitive value for your property.

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 a property value?

Property valuation costs can vary. You can expect to pay from $300 and $600 for a valuation to receive a report of three pages following the visit of the qualified valuer and the valuation process.

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.

What is Property Valuation and How to Calculate it

Investment property and property valuation: why you should get a professional valuation

There are a few critical reasons behind 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 for selling an investment property or buying an investment property.

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. 

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

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Apply online to get a free recommendation with real rates and repayments.

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.

What is Property Valuation and How to Calculate it

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.

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 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.

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