Updated: Mar 5
Is there any difference between Property Valuation and Market Appraisal? How do they differ? What are the things you need to know?
Difference between Market Appraisal and Property Valuation
The difference between a Market Appraisal vs Property Valuation is an important concept that all property buyers and home buyers must understand. While they may sound the same and probably look similar, there is a fundamental difference.
A Market Appraisal gives you an indication of price, from a Real Estate agent's perspective. It is how much your property could sell for in the Melbourne property market at a particular point in time. Whereas..
A Property Valuation is a legal value used by a bank or lender to know how much your property is worth, so they can process your mortgage accordingly. The property valuation is also used by the legal professions to determine the value of the property for compensation and settlements such as divorce, separation, etc.
It’s common to get a free market appraisals from real estate agents when you’re planning to sell your home or if you are planning to buy your home or property. The licenced buyer agents or real estate agents will usually share their opinion on price and the price the property can be bought or sold for. They do this by tapping into their knowledge and understanding of the specific property, the demand in the area, and the buyer demographics. Because this is based on 1 agents understanding of so many things, it is often often common to see this value differs from agent to agent. In some cases, we have seen variations of $200,000-500,000!
If the variations in valuations is small, it probably suggest that the values are quite accurate. However, if the variations are huge, it can be very confusing. You will need to figure out or guess why there is such a big difference. They might have a gold toilet in the house, worth over $100,000, or if the cheapest comparable property in the neighbourhood has some fire damage or termite infestation, that will knocked a few hundred thousands off the price. Thus, relying solely on recent sales, without a good understanding of what those properties are, is very misleading. It is unfortunate that many agents and buyers simply rely of sold-price listings to guess what a property is worth. Thus if you are comparing a market appraisal and property valuation, it is important to understand what you need the valuations for and how are the numbers derived.
If property buyers are not unaware of the basis of the valuations, they will be confused and are often misguided, intentionally or otherwise. It is tricky and impossible for inexperienced buyers to decide which appraisal or valuation is more accurate.
If you're are receiving conflicting property valuations, there is no need to worry. There are other ways of knowing the fair market value of the house. In addition to getting a market appraisal, you can research the value of your house through:
Property valuations provided by an independent valuer
Estimates provided by experienced buyers advocates or buyers agents
Free online estimates might give you a rough idea of the value of a property, but experience real estate Buyer's advocates like us, have never trusted those numbers. We always take those numbers with a pinch of salt. Those free valuations are more often than not, generated by simply computing an average of all properties in the suburb. It does not consider if the property has any unique selling points or of there are any problems with the property.
Why shouldn't we trust the free property valuations?
As you have seen above, time is usually involved to individually review and appraise a property. It can at least an hour or two (or faster of the agent already know the area well) before the real estate professional had done enough due diligence to derive a fairly accurate appraisal. Thus, fairly accurate reports are usually not free. Some property consultants charge a small fee of a couple of hundred dollars for an accurate report. Our low cost property appraisal service gives you a peace of mind purchase for a low $138. And we guarantee the accuracy of our reports. No one else is confident enough to guarantee them like we do. If the sold price are over 15% different from our reports, we will refund the cost of the report. You get the report along with its sales history, proprietary and confidential information on the property and suburb free. The value may not be useful for the property, but the information on the suburb will help with your other purchase.
With our low fee, and accuracy guarantee, buyers like yourself should always consider purchasing the report prior to making an offer for their property.
How are Market Appraisals and Property Valuations calculated?
How does a real estate agent determine the price of the property?
We really hope this is a simple process which everyone can do themselves. Afterall, the more people who can price a property, the more the buyers can protect themselves from overpaying for the property. The more the buyers know of this process, the lesser the opportunity for real estate sales agents to artificially inflate the property price, or lower the property price, to achieve a certain outcome.
How is the price of a property determined? Real estate agents will inspect the property, study the the condition, size, location, and features of the property. They would then compare it with prices of recently sold similar properties in your area. Now, determining what is considered "comparable", can be an art in itself. The agent's experience in the industry, understanding of the buyer's demographics, needs and wants, will play a big part in determining the value.
Why are sales agents appraisal controversial? What is really happening?
While most sales real estate agents attempt to make a honest attempt to put a value to a house, many are driven by the need to get a listing. That is one of the KPIs of most vendor agents in the market. Their performance is determined by the number new properties they can list in the market. In order for real estate sales agents to do that, they have to entice property owners to let them list and sell their properties. And what else could be a better incentive than to demonstrate their properties are worth a premium, $100k above everyone else, and to promise property owners that their property can be sold for top dollars if they let them sell it.
Thus market appraisal from sales agents remains an estimate only as it involves guesswork and adjustments based upon the experience of the agent.
Property valuation is a much more formal and legal procedure to determine the value of a property. It is carried out by a valuer who is an independent professional and works on behalf of banks and other lenders. Property valuation takes a closer look at the property and its features to arrive at a more accurate value. They approach the valuation of the property from a risk perspective and it usually is not the full amount you could get in the current market. Property valuations can cost you around $500 whereas market appraisals can be obtained for free from any licensed Real Estate agent.
Or if you want an independent appraisal of the property (minus all the hidden agenda behind the sales agents' appraisal), get in touch with us. Our appraisal isn't free. It cost a small fee, to cover our time and expenses, but we are so confident of our accuracy, that we are includes our exclusive accuracy guarantee*.
If you’re buying your property or selling your property, consider speaking to one of our senior buyers advocates. Our agency principal, Rayson, has over 20 years of property buying, selling, and investment experience and would be happy to give you a hand.