Don’t underestimate the power and importance of property valuations. For anyone looking to find the current market value of a property in NSW, valuation reports are a hugely beneficial tool. Property valuation is a service used to determine the market value of a subject property. This can be for a residential or commercial property. The report will serve as legally-recognised proof of value for the business.
Valuation reports provide owners and stakeholders with crucial insight into the operational and financial efficiency of the business.
The difference between residential and commercial property valuations
First, we need to identify the differences between residential and commercial properties.
- A residential property is one whose main purpose is to provide a place of residence to its tenants. Examples include houses, townhouses, flats, villas, terraces, flatlets, studio apartments, and more.
- A commercial property is one whose main purpose is to generate a profit. The building serves as a place to sell goods and services to consumers. Examples include supermarkets, shopping malls, retail stores, hotels, car washes, and any other profit-focused property.
How residential properties are valued
The first step in a residential valuation process is generally a physical inspection where CPVs will carefully review the property.
A combination of methods exists for valuers, but the most commonly applied residential valuation method is known as the direct comparison approach.
The direct comparison approach focuses on the sales of comparable properties in the area. The sales data serves as a guiding point for valuers to establish the market conditions at the time.
CPVs then make adjustments based on the differences between the properties. A few of the internal and external factors that affect the final value are:
- Location
- Size and space
- Street appeal
- Age and condition
- Renovations and considerations
- Interest rates
- Market conditions
- Environmental risks
A few of the common purposes people purchase residential valuations are:
- Pre-purchase/pre-sale guidance
- Capital gains tax
- Rental reviews
- Mortgage and re-financing
- Division of a deceased estate
- Insurance purposes
- Legal proceedings and litigation
- Portfolio management
How commercial property is valued
Similar to residential property valuations, the process begins with a physical inspection of the commercial property. The CPV will then collect relevant market data and perform a comprehensive analysis of the local property market
For commercial properties, there is an attached focus on the income the property is able to generate. The most commonly used commercial valuation process is known as the income capitalisation approach.
CPVs first have to determine what the net operating income of the property is. This is essentially the yearly income minus operational expenses. The net operating income is then divided by the capitalisation rate to find the value of the property.
Additional factors that valuers consider when preparing commercial property valuation include:
- Type of business operating from the property
- Size and space of the building
- Location and surrounding infrastructure
- Parking availability
- Security and safety standards
A few of the main reasons that organisations seek out commercial valuations are:
- Strategic planning and portfolio management
- Legal and taxation compliance
- Risk management and insurance purposes
- Financial reporting and accounting purposes
- Rental and lease negotiations
How to prepare for a property valuation
For precise valuation reports, valuers need the right information. Getting everything ready for the valuer before the valuation can lead to a smoother and quicker process.
Some ways that individuals and organisations can prepare for valuations are:
- Provide CPV with all of the necessary documentation including title deeds or rental agreements.
- Provide CPV with blueprints and information regarding measurements.
- Ensure all of the rooms and areas on the property are accessible to the valuer.
- Clean and declutter all areas to guarantee an accurate valuation.
- Take care of any outstanding repairs, damaged pipes or electrical work.
- Provide CPV with a list of renovations and upgrades that have taken place on the property.
By taking the necessary steps, you can make sure the whole valuation process runs smoothly.
Why you should value your property
There are plenty of scenarios that call for a residential or commercial property valuation. As valuation reports are seen as legal proof of market value, they come in handy in a range of different circumstances.
A few of the main reasons valuation services are requested are:
- For valuable pre-sale/pre-purchase guidance.
- For guaranteed fair compensation in cases of compulsory acquisition.
- For quicker and smoother negotiation processes.
- For clarity on reasonable and fair rental prices.
- For a clear outline of property-related tax obligations.
- For assistance with choosing an appropriate insurance package.
- For precise and accurate assessments of market value for a range of properties and assets.
- For smoother mortgage and re-financing applications.
- For quicker mediation and settlement processes.
- For expert witness assistance during litigation or legal processes.
- For improved strategic planning and property management.
- For effective investment tracking and financial decision-making.
Ultimately, the independent and unbiased nature of independent property valuation reports makes them hugely beneficial for individuals and organisations.
Summary
Property valuations in NSW are a massively important service for individuals and organisations. They essentially serve as the most reliable way of finding market value for residential and commercial properties.
A residential property is one with the intention of providing a place of residence. A commercial property is one with the intention of generating an income.
The valuation process for residential and commercial properties is distinctly different. The main approach for residential properties is known as the direct comparables approach. The main approach for commercial properties is known as the income capitalisation approach.
Reports can come in long-form or short-form; depending on the level of detail required. CPVs can make a judgement on whether long-form or short-form reports are best suited to your circumstances.
There are many scenarios that call for independent property valuations. Advantages include valuable pre-sale/pre-purchase guidance, smoother negotiations, fair compensation, and more.
For more information on the differences between residential and commercial property valuations, don’t hesitate to pick up the phone and give us a call today.
