Homeowners and property investors tend to use the terms “property value” and “property valuation” interchangeably. While these two concepts are similar, they are not the same. If you are planning to purchase, sell, refinance, or invest in real estate, it helps to know the differences between the two.

In a market as dynamic as Australia, especially when discussing property values in Sydney, it would be beneficial to understand how the factors that influence prices differ from those included in a valuation report.

Property Value Definition

Property value refers to the price that the market will pay for a specific property at a particular point in time. This is usually affected by supply and demand, buyer sentiment, interest rates, and local market trends.

Simply put, the property value is the price at which you can sell your property if you were to sell it today.

What Is Property Valuation?

Property valuation is a formal process undertaken by an authorized professional valuer. The outcome of a valuation is a written report detailing an estimation of the property’s value supported by evidence and established valuation principles.

Valuations are necessary when:

• ● Taking out a home loan or refinancing
• ● Resolving legal disputes
• ● Settling family law disputes
• ● Evaluating tax liabilities and capital gains
• ● Obtaining insurance
• ● Formulating estate plans

While any real estate agent may give you a market valuation of your property, an appraisal is a professional report that lenders and legal authorities will recognize.

The Fundamental Distinction Between Value and Valuation

The most straightforward way to distinguish between the two concepts is to note the following:

The value of a property is influenced by the market

A property valuation is evidence-based and professionally appraised

Property values can fluctuate rapidly due to emotional influences, competition, and trends. On the other hand, a valuation is methodical and often provides an accurate reflection of fair market value.

Factors That Impact Property Values

Property values may experience rapid changes, particularly in highly sought-after markets. Typical influences include:

Interest rates

Low-interest rates make borrowing cheaper and increase demand.

Buyer demand versus supply

With increased buyers pursuing less available properties, the price increases.

Location and lifestyle

Close proximity to transport, schools, beach locations, and commercial areas is very important.

Market sentiment

Market conditions and even news articles can affect the buyer’s behavior.

Projects/infrastructure works

Development of new road networks and commercial areas can affect the market.

Factors Affecting the Value of Property

Apart from analyzing the market conditions, the professional valuer uses physical evidence such as:

Recent transactions

Valuers compare your property to recent sales of other homes in the locality.

Size and zoned use of the land

Land represents a big percentage of property value where redevelopment is an option.

Condition of property

Properties which have been renovated tend to be valued higher than others.

Features of property

Extra rooms, garages, pool and outside spaces are analyzed.

Income potential

In case of rental property income, market demand affects the valuation process.

Why Does This Matter If You Are Buying Or Selling?

If you are selling, you may get varied price quotes from real estate agents. 

The purpose of these estimates is to help sell the property.

A valuation is always lower because it has to be backed up with facts.

If you are buying, you can make an emotionally based decision. A valuation will help you make a more practical choice about the property’s value.

Comparison Between Valuation and Real Estate Agent’s Appraisal

There are many misconceptions about valuations and appraisals by real estate agents.

The appraisal of the real estate agent is a price estimate that draws from their personal experiences with the property market. It cannot be legally enforced.

The valuation is a report conducted by a licensed valuer and is useful for financial transactions.

How Can Property Values Increase Without Any Modifications to the House?

There may be cases where a property’s value increases even though there have been no modifications made to the house. In such cases, it’s the market environment surrounding the property that has changed.

For instance, if an area becomes more sought after because of the construction of amenities like cafes and better connectivity, property prices will increase without requiring any changes to the property.

This is why a homeowner must never take it for granted that the rebuild cost, rent, and value of his/her home match those of the market.

When Do You Need to Get a Professional Valuation Done?

Getting a professional valuation becomes necessary in cases where financial matters and legal consequences are involved. Such circumstances include the following:

• ● Mortgage application
• ● Re-financing
• ● High-end transactions
• ● Divorce proceedings
• ● Estate planning
• ● Tax considerations

Conclusion

Values reflect current prices in the real estate market. 

Valuation is an expert and data-backed evaluation of how much a property should be worth.

While both values are important and valuable, their usage may differ.

When you make such a decision that would affect your finances, knowledge about them could save you from trouble and boost your confidence.