Understanding Property Appraisals
A Homeowner’s Guide
To Understanding Property Appraisals
A property appraisal is a great way to find out what the local property market is doing at that point in time, and is an important step to understand your true net worth. Has your local property market fluctuated, have you recently renovated, are you interested in investing, are you looking to upsize or downsize? Or are you simply keen to find out what you are sitting on?
When you know the facts about the value of your most important asset you can make smarter decisions which more positively affect your current and future financial wellbeing.
There is no right time to sell a property - it really comes down to your own circumstances. But once you decide to sell, there are a number of things to consider, including:
- Choosing a real estate agent
- Finding how much your property is worth
- Picking a method of sale
- Setting a selling price
- Finalising the contract
- Agreeing on a marketing campaign
- Preparing your property for inspections
- Along with all the steps to complete the sale
Perhaps the most important element to consider from the list above is: how much is your property worth? Enter property appraisals.
Conducted by a licensed real estate agent, an appraisal is a good way understand how much you could sell your property for in the current market.
01.What is a property appraisal?
A property appraisal is an estimatA property appraisal is an estimate of price for your property in the current market. Real estate agents specialise in answering the ‘how much is my home worth’ question, and they do it by running a comparative market analysis which involves finding similar properties that sold within the last 90 days. The closer they are able to match your property to others sold in the area, the more accurate the appraisal will be. Agents also consider current competition, wider market trends, the property’s structure and its condition. Property appraisals are an excellent way of understanding your properties potential market value at that point in time.
It’s always advised that you contact a real estate agent from your local area to conduct an appraisal. They live and breathe property in your neighbourhood and have an intimate knowledge of the suburb. This ensures they can give you a more accurate appraisal.
When a real estate agent conducts a property appraisal there are several things they consider, from property size right through to the fixtures and fittings.
What’s involved in a property appraisal?
When conducting a property appraisal, the real estate agent will look at the size of the overall block, the size of the structure on the land, as well as the size of the relevant areas within the home. For example, how large is the living area or main bedroom? The agent, however, has to weigh up these measurements against other properties in the area. It’s also crucial to understand the potential buyers or target market.
When looking at property size, the agent will also consider the outdoor areas – whether there is parking, and whether it’s a carport or lock-up garage, as well as the size of the garden and/or terrace/balcony.
Number of bedrooms
Bedrooms are a key element of the property appraisal process. Normally more bedrooms mean a higher market value. However when conducting an appraisal, the real estate agent will take into account the size of the bedrooms, whether they have an ensuite, built in wardrobes, views, etc.
When appraising your property, the agent will also look at similar properties that have recently sold with similar specifications as yours.
Fixtures and fittings
When it comes to fixtures and fittings, they’re not always sold with the property. Curtains, for example, do not necessarily need to be included. Neither do light fittings. When analysing the fixtures and fittings, the agent will firstly take into account whether they will be included in the sale price, and then if so, what condition they are in. While it may seem minor, a potential buyer walking into your property and looking at everything they have to fix may push the price down.
Areas for improvement
No property is perfect, but some imperfections are worse than others. When analysing a property for appraisal, the real estate agent will look at all the areas that need to be improved, or even just could be updated. In fact they are often a great person to ask where you should spend money on home improvements. They know what local buyers are looking for and what they value in a property. Whilst agents aren’t experts in this area, they can often give you some good guidance here.
It may be as simple as a quick paint or replacing the door handles. Other jobs may be a revamp of the kitchen or bathroom. However, it doesn’t necessarily need to be a whole renovation – simple fixes such as a new vanity or new lighting can make a world of difference to the price you achieve.
As with anything, you need to weigh up the cost of the fix against the possibility of a higher sale price.
As the saying goes – location, location, location. When it comes to appraising a property, location matters.
When looking at the location, an agent will not only look at the street the property is in and the vicinity to local attractions, but they’ll also look at what school catchment the property is in, what amenities are nearby and what public transport routes are accessible. But remember, just because your property isn’t necessarily near anything, doesn’t mean it’s not going to attract a good price. Sometimes, the quieter streets and areas are just as desirable.
Building structure and condition
The stronger the building and the better condition the structure is, the more your property is likely to be worth. Let’s face it, any smart potential buyer is going to request a building report, and if there are cracks (figuratively and literally) they’ll show. Your property doesn’t need to be the fanciest or the most modern, but the better built, the better the price. The last thing most buyers want to do is structural work.
Overall presentation and fit out
Of course, nowadays, the overall presentation can generally be enhanced using a property stylist or rented furniture. While this comes at a cost, presentation is key when potential buyers walk through the door. And remember, you never get a second chance at a first impression, so you need to style to sell.
Listen to your agent if they suggest moving furniture around or taking some out completely. Your property needs to reel people in with exceptional presentation, but it also needs to leave some ideas to the imagination of the buyer; they need to picture themselves in your property.
Ease of access
The real estate agent completing the property appraisal will take into account the ease of access to the property. This relates to access to the front door, access for a car and even access to the utilities.
Some people may not care about walking up a couple of flights of stairs, others will loathe it. For this reason, ease of access may be a big thing when it comes to potential buyers, especially if you’re gearing your property to a young family or elderly people. The easier it is to access, the more desirable.
Planning and restrictions
Sometimes, when you’re selling a property you’re also selling the potential of a property. So, when appraising a property, a real estate agent is always going to look at what other vendors have done in your area in terms of building, and they’re going to look at whether there are restrictions on planning in the area, and for your particular block.
Local council zoning also may impact what a person can and can’t do with the block of land, and if there are a lot of restrictions, it may put people off.
Market conditions and recent local sales
There’s no denying that the condition of the market will generally dictate what your property is worth. An agent will look at the recent sales in the area and overall market trends to get an idea of what price to present to you as a guide.
However, while the market may indicate a lot when it comes to purchase price, it’s not the ‘be all and end all’. A potential buyer may walk through your front door and fall in love straight away.
Valuations vs. Appraisals
It’s important to understand what your property is worth. It’s also important to understand the difference between a valuation and an appraisal.
A property valuation is usually performed by a Certified Practicing Valuer for an agreed fee. They are not real estate agents or associated with any real estate agency. Generally, valuers will use one of three methods to value your property: direct comparison, capitalisation or summation. They will inspect the property, carry out research and analysis into the local market and provide a detailed report regarding issues affecting the current market value of the property.
A property valuation service is commonly required by a bank or financial institution prior to approving a home loan. It is also used by buyers and sellers wanting an independent opinion prior to pre-purchase or pre-sale, family or partnership settlement, capital gains tax, and in some instances building insurance.
An appraisal, on the other hand, is an educated judgement on what your home is worth. Not only will the agent look at all of the sales in the area, not just their own, but they’ll provide a unique insight into the local market. They specialise in your area after all. They also provide a figure based on insight into the features of your property.
Importantly, while the professional valuer’s figure is unbiased, the agent’s figure is generally indicative of interest in the suburb and it may even be influenced by conversations the agent has had with potential buyers in the area.
02.The property appraisal process
It is a simple process to get a property appraisal.
Book your property appraisal
Property appraisals are nearly always free. Your local real estate agent is the best person to invite as they will be able to give you a good understanding of your property’s worth.
Relax about the state of your home
You don’t need to worry about styling your home for a property appraisal. Real estate agents are experts at seeing through the general household clutter. They are more interested in looking at the size of the property, the number of bedrooms, the number and quality of bathrooms, the kitchen, the overall building structure, and its condition.
So don’t stress about the pile of kids toys on the floor, or the basket of washing that hasn't been put away … relax, have a cup of tea and simply show the agent through your home – warts and all.
The real estate agent home visit
Once the real estate agent is at your property, they’ll likely have a good look around and ask you a few questions. Always be honest, especially about any renovations or upkeep you’ve done over the years. There will also be a chance for you to ask the agent any questions you may have.
Some questions you may ask include:
- What kind of experience do they have?
- What is their knowledge of the local market?
- How do they plan on marketing your property?
- What recent results have they had?
- What’s their commission?
- Can they provide references?
Of course, there are many more questions you can ask. Don’t be afraid to say what’s on your mind. Remember, you need to be comfortable with the agent. They are, after all, selling your most important asset.
Property appraisal figure and supporting documentation
The real estate agent will come back to you with the figure they believe is accurate for the market, area, and the property. This will include supporting documentation such as local sales of comparable properties within the last 90 days and a summary of wider market trends.
03.Should you get a property appraisal?
Understanding the value of your property
is a wise financial decision
Getting an appraisal isn’t always necessarily about selling. It can also be simply about understanding what your property is worth in the current market. If you’ve recently renovated you may want to know how much value it has added to your property. Or perhaps you’re looking to buy an investment property, considering upsizing as the family has grown, or downsizing as the family has moved out, or simply keen to find out if the value of your property has changed. Knowing the value of what is undoubtedly one of your most valuable assets (if not the most) is a wise financial decision.
Lifestyle and family changes
Whether you’re starting a family, growing your family or facing an empty nest, your needs change. If you need more space and you’re looking for the next step, or you’re hoping to downsize because you don’t need the family home anymore, getting an appraisal ensures you understand what your property is currently worth. This means that you’re not relying on an old property appraisal, or guessing what it’s worth based on how much you paid for it and how much you overheard the place down the road sold for.
Just because you loved a location when you first bought your property, doesn’t necessarily mean you love it now. Job changes, lifestyle changes and neighbourhood transformations can all influence whether you love or no longer like the area.
For example, while you may have appreciated inner-city living as 20-somethings, the lifestyle may not suit your kids. The same goes for those who no longer love living in the suburbs.
What’s important though, is knowing what your current property is worth so you can figure out what you can afford for the next. An appraisal will help.
Doing home improvements, whether big or small, are likely to influence the appraisal process. Whether it’s a paint job, replacing appliances, adding an extension or redoing the façade, many jobs that refurbish a property is a plus in the appraisal process. It also will likely add value to the home.
Any time you renovate, it’s a good idea to call in an agent for a fresh appraisal so you know what the property is worth with the updated work.
More money, less money – both are reasons to sell a property. For those earning more, it may be time to step up. For those who are retiring, it may be time to downsize. The changes in financial circumstances are a big reason many Australians decide to put their property on the market.
Of course, a fluctuating Australian dollar also impacts a person’s ability or need to sell. While financial changes may result in a limited ability to do the small or large improvements necessary to sell the property, getting an appraisal means you can understand what the property is worth in its current state. It allows you to weigh up the option of selling it as is, or holding on to the property for a little longer.
04.Taking the next step
Finding an agent you can trust
If you decide to sell, there are several steps to take. First and foremost, you need to choose an agent. When deciding on a real estate agent, you need to find one you’re comfortable with and one who you trust.
Choose the right ‘value- add’ home improvements
Another thing you’ll need to do, once you’ve decided to sell, is to walk through your property with fresh eyes – as if you were a potential buyer. This will hopefully give you a good idea of what the buyer’s first impression will be and will indicate the ‘problem’ spots that need attention.
Tackle The Important Questions
When talking to the real estate agent, it’s also important to discuss the best way to sell your property; via auction, private treaty, tender, or expression of interest. Your real estate agent will be the best person to guide you on this.
Marketing Your Property To Sell
Effectively marketing your property is a critical part of achieving a successful sale. A well-rounded marketing plan with a mix of different advertising channels such as the internet, social media, signboards, local marketing, and newspaper advertising all play an important role in spreading the word about your property and creating healthy competition among buyers.
Once you’ve decided what needs work and what doesn’t, it’s time to spring into action. Everything will need to be completed before professional photos are done. You’ll also need to declutter where possible, and you may even need to rearrange some furniture. At this stage it’s a good idea to listen to the experts as they often know what potential buyers want to see when they walk through your door for a house inspection.
Selling your property
There is no right time to sell a property - it really comes down to your own circumstances. However, when you know the facts about the value of your most important asset you can make smarter decisions that more positively affect your current and future financial wellbeing.
A property appraisal is an easy, informal and essential process if you’re thinking about selling, or just curious about the value of your most important asset. Who knows, the appraisal results may even surprise you.