When people hear the words ‘Property Valuer’, the first thoughts that come to mind are ‘conservative’ and ‘working for the bank’. These two assumptions are not generally correct. There are definitely some valuers who likely err on the side of caution but a valuer should be determining a valuation figure that is the same as the current market value.
How value is calculated
A valuation is an independent opinion, by the inspecting valuer, of the market value of a property. This is not a selling agent’s appraisal. When we say independent, this is because most valuers are employed by private companies, not the banks. When you apply for a loan against a property, the bank or broker will generally order a valuation. This is then ordered through external companies that have no association with the banks.
A valuer will assess a property on a number of merits. They will consider the:
- Condition of the property
- Presentation
- Land size
- Size of bedrooms
- Overall size of the living space car space and outdoor areas
- Location relative to schools, shops and transport, proximity to the CBD
- Quality of fixtures and fittings
- Layout of the floor plan
- Quality of the build
- A number of other items
How to get a higher valuation
If your aim is to get a higher valuation on your property, there are a number of things that you can do that will impact on the valuers impression of the property, which could then reflect a higher valuation figure.
1. Focus on good presentation
First impressions count, so when a valuer is approaching your property from the road, if your property presents well, is neat and tidy, mown lawns, etc, then the first impression is going to be positive.
This instantly means the valuer isn’t going to walk into the property expecting to see it poorly maintained; instead they will walk in with a positive mindset.
The external appearance of a house definitely plays a part in this impression. If there is paint peeling, as well as rusted balustrades/handrails to the patio, overgrown fences, etc… this will not only impact on the valuer's impression but will also increase the percentage of depreciation the valuer will assign to the improvements of the property.
2. Consider installing branded items for fixtures to your property
By fixtures we are referring to air conditioning units, appliances, tapware, etc.
During their inspection a valuer will take note of the improvements to a property, and if see well-known brands over not so well known brands, they are going to have an instant impression of quality versus cheap finish.
The overall cost may not be too different, but quality brands reflect well, not only for the valuer but for a potential future purchaser.
3. Try to create larger rooms
4. Add or extend an outdoor area
Adding a covered outdoor area to a house will certainly add value. Australia’s climate lends itself to the outdoors and Australians take pride in entertaining on the deck or the patio, so this will add value to your property. But it is important to ensure the outdoor area is accessible from the living space. If you have to walk through a laundry or around the back of the house to get access to the area, this will not feel like an extension of your living space and could actually deter future purchasers.
5. Install a second bathroom
Bathrooms are extremely important for the ability to increase rental returns, but families are looking for properties with 2 bathrooms rather than just 1. If you can buy a property and build a second bathroom, this will improve the value of the property significantly. In some areas of Queensland, we have seen a second bathroom add as much as $50,000 difference to the value of a home.
These are just a few things that can improve the value as well as the presentation and functionality of your property. If you are buying a property and want to improve the value, you could look for properties that haven’t got the above features and then renovate using these tips to add value.
Granny Flats: Do they add as much value as they cost to build?
A big fad at the moment is the ability to add a granny flat to a property. This is especially popular in NSW with the legislation permitting a granny flat up to 60sqm without a formal development approval (ARSHEPP, or Affordable Rental Housing – State Environmental Planning Policy approval is still required), Granny flats are now becoming more popular in Western Australia.
The reason a vast number of people are building granny flats on a properties are to improve the rental return. This is a great strategy if you are looking to have an investment property that is positively geared; however, generally speaking, the cost of the granny flat will outweigh the value it adds to a property.
There are different models; some people choose to crane in a shipping container that has been converted to a granny flat; some choose a demountable-style building and others build “from the ground up” a physical brick or lightweight construction building as a second dwelling. The bank actually instructs valuers to exclude demountable dwellings and granny flats from the overall market value – we have to make a comment as to what accommodation is available on site, but it will be excluded from the market value. A dwelling built of brick – or constructed “from the group up” - will be included in the valuation. The cost of a granny flat will range from around $80,000 - $150,000 depending on the quality of the fit-out.
From a valuation perspective, the cost of these is significantly higher than the value it adds to the property. This is in part because many people who build are not concerned about the value of the property; instead they are focusing on the yield and are prepared to spend the money to gain this.
While a valuer considers the rental return of a property as part of their assessment, the value is determined by calculations of construction costs on a rate per square metre, and this, combined with the land value assessed, provides the market value. This is then compared to sales evidence as a check method. The valuer cannot put a value on the property based purely on the rental return and therefore, despite the increased yield, the value may not increase significantly.
The trouble with a granny flat is that for a 60sqm building, the cost is between $1,300 and $2,500 per square metre, which is a significantly higher rate per square metre than the rate of a brand new residential building.
Poorly constructed granny flats are becoming more and more common, especially in the western suburbs of Sydney, as companies try to reduce the build costs as much as possible to improve the rental yield for their investor clients. This is where our valuers are seeing the vast majority of granny flat constructions. This reduction in quality is making it even more difficult for valuers to support a construction contract or give the property an increase in value that equates to the cost.
Our advice - if you’re going to build a granny flat and are aiming to get the highest increase in the capital value of your property from a valuation perspective, is to build quality, and do it in areas where there is a limited supply of granny flats or ability to build granny flats.
This will ensure that your property is more unique and may attract a premium due to its unique nature. It will also improve the future marketability as it will appeal to both owner-occupiers and investors, and with quality fixtures and finishes it is going to add more value.
If you build in an area where there are a lot of granny flats or a large number being constructed, this has the potential actually diminish the value of your property long term. This is in part due to the fact that granny flats are generally quite cheap to rent not necessarily promoting the highest calibre of tenants.
It is also because by increasing the density in areas that are not close to a CBD, this puts a higher impact on the roads, sewers, shops and facilities that are not built to cope with the increased population and could therefore turn the area into a not so desirable place to live.
Automated Valuation Models: Are they reliable?
A valuation includes the valuer physically inspecting your property. But there are a number of other property assessments that people rely on in order to determine the value of their properties.
These include a ‘desktop assessment’, an ‘agents appraisal’, an ‘automated valuation’ or a ‘restricted assessment/drive-by’. None of these are an actual valuation- they are an assessment of the value of the property using market data.
Desktop assessment
This is completed by a qualified valuer from their desk in the office. They don’t inspect the property, they don’t drive past the property, they are purely assessing the value from their desk.
Some important features of the property will be provided by the bank, including number of bedrooms and bathrooms and land area, and the valuer will then look at the property through a mapping system such as ‘Google maps’ and then, based on their knowledge of the area and on reviewing, from their desk - sales evidence in the local area, they will determine an indicative, or market value range for the property.
Restricted assessment/drive-by’
This is where the valuer will physically drive past the property and then similar to the desktop assessment, consider the property against market sales and provide an indicative or market range. There has been a big trend towards automated valuations. You can order these online through a number of websites; however their accuracy is very poor.
These valuation models are similar to a desktop assessment because no one goes to the property; the figures they calculate are purely based on sales evidence and statistics of the area.They are not a good indication of value and we have seen some of these assessments come back by as much as $250,000-$300,000 outside the market value of a property worth around $750,000.
Every property is unique, and relying purely on statistics and sales evidence without inspecting the property you are valuing, will always cause a discrepancy against the actual market value.
If you are looking to buy a property, you should consider having a valuation done prior to making an offer to ensure you’re not paying too much. If you’re looking to improve the value of your property, the above should hopefully have provided some insight into what a valuer looks for and what they consider adds value so that you can complete your renovations accordingly.
James is the National Manager for the Buyers Advocacy Division of Propell National Valuers. James started working in the property industry in 1999 as a valuer’s assistant and became, at the time, Queensland’s youngest registered Valuer in 2002. He now specialises in property investment strategies, feasibilities, due diligence, and the acquisition of Residential and Commercial property throughout Brisbane and greater Queensland.
