Fair Market Value: What do We Need to Know?
If you own property, you may have wondered about whom to reach out to for a fair market valuation report. Before this, it is important to know what fair market value is.
It refers to the value of a property according to the existing market conditions. It is the price that would be negotiated between a willing buyer and a willing seller in an arm’s length transaction.
The value of a property is influenced by various internal and external factors, and professional valuers use a combination of reputable methodologies to reach a final definitive number. Property valuation services in NSW offer a wide range of valuations.
An independent valuation firm will assign a localised expert to calculate the subject property’s value to the highest degree of accuracy possible. A valuer should be registered with the Australian Property Institute (API) and adhere to the guidelines set out by the Royal Institution of Chartered Surveyors (RICS).
Certified Practising Valuers are uniquely trained to prepare reports that meet the necessary regulatory and legislative requirements. The final document is often used for litigation or legal purposes, and must be in accordance with the standards of the court.
What is fair market value of a house based on?
The fair market value of a house can be influenced by several factors, some with more weight than others. Knowing what makes a property valuable can be beneficial to home and business owners, so we’ve outlined some of the key considerations:
Location
As you may have heard, location is a crucial factor when determining the value of a property. The suburb’s reputation, the growth potential, the nearby facilities, the neighbourhood noise, and more.
Size & Space
One of the most impact parts of a home is the usable space. A property with spacious flooring and extra storage space will have a higher value than a compact home or property.
Market Conditions
Valuers will look at comparable sales to determine the condition of the market, as prices fluctuate according to the existing conditions.
Interest Rates
When interest rates are high, consumers are less willing to take up mortgages needed to finance a property. With fewer people looking to buy property, the market price may decrease.
Street Appeal
The way your house looks on the outside is decisive and plays a large role in attracting potential buyers or investors. The value of a property will be negatively affected if its street view is unappealing.
Nearby Facilities
People want to be close to places such as school zones, hospitals, shopping malls, and forms of entertainment. Properties that are close to useful facilities have a higher value than remote and isolated buildings.
Features & Renovations
Renovations and renovation-potential can instantly prove the value of a house. Modernised houses with entertainment areas and extra amenities lead to higher values.
Condition of the Building
A building that has gone through significant deterioration will be worth much less than a well-maintained or modern-looking property.
What methodologies do property valuers use?
Certified Practising Valuers often use a combination of reliable methodologies when determining a property’s worth. A primary method is often chosen, and secondary methods are used to refine and validate the calculation.
The methodology used is dependent on the type of property valuation being requested. Some of the most commonly used approaches are:
The Direct Comparison Approach
This approach involves an analysis of comparable sales within the area. Valuers review properties with similar characteristics and how much they were sold to determine an average market price.
The Summation Approach
Valuers add the land’s value to the value of any improvements made to the property. The final amount is the sum of the values assigned to each part of the property, taking into account depreciation.
The Income Capitalisation Approach
A more complex approach is mostly used for commercial properties and businesses. The value of the property is on the income the property generates. It is calculated by taking the Net Operating Income and dividing it by the Capitalisation Rate.
The types of property valuations
A fair market valuation is beneficial for all sorts of properties, and services are often wide-ranging. Some of the commonly assessed properties are:
Residential Property Valuation
A commonly requested type of property valuation is often needed for homeowners, buyers, sellers, and investors.
Commercial Property Valuation
A more complex valuation is used for businesses and organisations where the annual income influences the property’s final worth.
Industrial Property Valuation
A specialised valuation for buildings and properties in the industrial sector such as factories, distribution warehouses, breweries, manufacturers, chemical storage facilities, and more.
Rural Property Valuation
The assigned valuer will be localised to the area and understand the intricacies of examining rural properties.
Plant & Machinery Valuation
A wide-ranging and complicated valuation service performed by Certified Practising Valuers (CPV) of Plant and Machinery (P&M). A unique service that requires specialised knowledge and experience.
Summary
For buyers and sellers of property, a registered valuation from an independent firm is inevitable. Knowing the worth of a home or business helps to make well-informed financial decisions in the future.
The value of a property is influenced by a wide range of different factors such as its location, market conditions, and more. Property experts also apply a mixture of different reputable methods to reach a fair final value.
For more information on who determines property valuations in NSW, speak to one of our qualified experts today.
