What’s the deal with appraisals & valuations?

Whether you’re looking to refinance your home, sell or both, it’s important to know what your property is worth.

As with most things, the value of your home or investment is likely to have changed over time. Before you make any big moves, it’s important to have an idea of what your property is worth. That’s where appraisals and valuations come in.

Now, you’re not alone if you’ve been a bit confused about what these words mean. They’re often thrown around in the same sentence, and it can be hard to know the difference, and how they should be used. So let’s talk through what appraisals and valuations are, how they’re used, and what your role would be.

What’s the difference between an appraisal & a valuation?

An appraisal is an informal assessment of your property’s value, usually conducted for free by a real estate agent or mortgage broker. It’s a useful tool for you to get an idea of what your home or investment property might be worth.

A valuation, on the other hand, is a formal report used by the bank to define what your property is worth on paper. It’s usually more in depth, and tends to be more conservative. Generally speaking, your lender will take care of the valuation for you during the home loan application process.

Should I get an appraisal or a valuation?

A property appraisal is a useful tool in your belt when you’re considering your next move. It will give you a better idea of your situation – plus it’s usually free.

When it comes to a formal valuation, this isn’t something you’ll need to think about. Your bank will organise an independent valuation as part of the process of assessing your loan. While you can get your own valuation with a certified practicing valuer, it will cost between $300 and $600 and is often not necessary.

How do I get a property appraisal?

Luckily, the process is pretty simple! All you need to do is contact your local real estate agent, and you should be able to set up a free appraisal. While the process can vary depending on the agent and your property, you can expect it to involve the following:

Inspection: You’ll need to organise a time for the agent to visit your property. They’ll want to take a tour of the property, and will ask you questions about its condition and features, as well as any upgrades or renovations you’ve made.

Research: Your agent will do some research into the area and similar properties. They’ll consider things like the local real estate market, the economic conditions, and other relevant data.

Analysis: Your agent will then consider all the information they have from their inspection, experience and research to estimate what you can expect your property to sell for.

Remember, an appraisal isn’t the same as a formal valuation. Valuations are often more conservative, so don’t be surprised if the number you get in an appraisal is a bit higher than what you eventually see from your lender.

How will a valuation affect my ability to refinance?

When you’re looking to refinance, a valuation will play an important role in how your lender decides the value of your property and how much you will be able to borrow. While in most cases you won’t need to organise a valuation yourself, it’s important to know how it affects your financial situation.

Equity: A valuation will determine the equity you have in your home – the difference between the property value and the outstanding balance on your mortgage. A higher value means you’ll have more equity that you can potentially access when you refinance.

Loan-to-value ratio (LVR): Lenders use your LVR – the relationship between the value of a property and the amount of a loan – to determine the risk of lending to a borrower. As with equity, a higher valuation means your LVR will also be higher, which makes it easier to qualify for refinancing.

Interest rate: Sometimes, the value of your property can play a role in the interest rate you’re charged. If you have more equity and a lower LVR, you may qualify for a better interest rate.

Refinance options: The value of your property can also affect the type of refinance options available to you. For example, it could determine if you’re able to ‘cash out’ some of your equity to use in buying another home, renovations, etc.

How can I get the best appraisal or valuation?

Great question! The number one thing you can do is be prepared. While the agent or valuer is an expert in real estate, you’re the expert when it comes to your particular property. It’s a good idea to gather some information before your appraisal to help the agent make a more informed assessment. Think about jotting down or gathering together the following info:

Basic details including the address, age of the building, legal description, layout and square meterage
Documentation of building plans (if you have them), as well as council rate notices or tax valuations
A list of your property’s features so nothing gets missed during the inspection.
Information on any upgrades or renovations, including the cost, date, plans or other relevant documentation
A list of any problems with the property, whether that’s structural issues, water damage, pest infestations, etc.

The last point might feel a bit strange, but it’s important to be honest – especially when you’re getting an appraisal. Hiding the not-so-good stuff will only make it harder for you to get an accurate picture of what your property is worth.

That said, you can still put your best foot forward. Doing some quick cleaning and decluttering of your house and garden can go a long way to highlighting the features that make your property special.