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Tips For Buying » APPRAISAL V VALUATION: WHAT PRICE?

11 Feb 2015 (08:39)Author: Administrator

APPRAISAL V VALUATION: WHAT PRICE?

There are significant differences between an appraisal and a valuation. It is important to know when an appraisal will suffice, or when you need a formal valuation. Although appraisals are usually reasonably accurate, they are estimates only and, they do not have the same legal responsibilities as a valuation. Good real estate agents and good buyers agents know the difference and do not use the term valuation when they actually mean an appraisal. This Blog will explain the difference between the two terms.

A few years ago now I attended a public event on the real estate market designed for the general public and fronted by a well-known real estate agent TV personality.
As a buyers agent who specialises in Sydney's North Shore, I try to attend these kinds of events to gain a better understanding of not only the North Shore property market, but also the Sydney and national real estate trends and movements in general.

The event was as you'd expect, covering issues such as median house prices across Sydney and Australia, past performance for capital growth, best areas for rental returns, projected suburbs for best growth etc. There were presentations by the usual suspects, a company that analyses all the real estate data, a bank, a mortgage broker, and of course the real estate TV personality.
The speakers, interchanged the terms appraisal, market value and valuation when describing a property's price.
During the audience Q&A time, a member of the public reasonably asked a simple question...”what's the difference between an appraisal and a valuation?”

To my absolute amazement (and dismay), the real estate TV personality quickly told the audience, with absolute authority, that there was no difference at all and that some real estate agents call it an appraisal and others call it a valuation, but either way it's the price a property is expected to fetch on the market. Perhaps my dismay was heightened because I was well on my way to completing the necessary qualifications to become a registered valuer; an Advanced Diploma of Property Valuation (from the Sydney Institute), followed by a Masters of Commerce in Property Investment and Development (at UWS).
Ever since this event, my hackles raise when I hear someone incorrectly use the terms valuation to describe what essentially a market appraisal is.
There are significant differences between an appraisal and a valuation and it is important to know when an appraisal will suffice, or when you need a formal valuation. This Blog will explain the difference.

What is an appraisal?
An appraisal is normally provided by a real estate agent, Buyers agent or, property manager. An appraisal is the best estimate of what price a property is likely to sell and/or rent for. The appraisal amount is usually based on recent comparable sales and/or rentals in the area. A real estate agent or buyers agent should be able to provide these comparable sales/rentals evidence to you. The more specialised a real estate agent or buyers agent is in a particular area, the more accurate they are likely to be in providing an appraisal. An appraisal is generally free and is generally provided as a single figure (or a range) and can be verbal on in writing. In most cases, an appraisal will provide a reasonable guide of the market price for a property and are adequate for most real estate transactions. It must be kept in mind, that an appraisal provided by a real estate agent is not independent - ie, an agent is providing a market appraisal in the process of obtaining a listing of that property. An appraisal conducted by a buyers agent is more independent, as the appraisal is usually done on a property that their client is interested in purchasing (ie a buyers agent does not usually have a vested interest in the appraisal amount provided to their client).

An appraisal is different to a valuation.

What is a Valuation?
A valuation provides an estimate of a property’s market value. The market value is described as the price a property should sell for at the date of the valuation. A valuation is a complex undertaking factoring in more than just comparative sales including (amongst other things): (i) property location; (ii) the structure of the building; (iii) the building condition; (iv) building or structural faults; (v) encumbrances and caveats on the property; and (vi) zoning (current and planned). A valuation is always provided as a written report and a fee is charged for the service.
A valuation can only be provided by a registered valuer. In NSW, a valuer is registered with NSW Fair Trading, after having met all of the appropriate training (usually a degree from a university). In NSW, a valuer is also usually a member of the Australian Property Institute (API) and like an accountant has accounting standards, a valuer has valuation standards which must be met. For someone with no experience, a Real Estate Licence can be obtained in a few months, whereas a valuers licence takes many many years.

Do I need an appraisal or a valuation?
When an accurate price of a property is needed, a Valuation is required especially for obtaining finance from lenders, where there is a property settlement as a result of separation or divorce, when settling a deceased estate, compulsory acquisition of land by the Government for infrastructure projects, or when by court order.
Although appraisals are usually reasonably accurate, they are estimates only and do not have the same legal responsibilities as a valuation. A valuation is an independent and legal document which can be tendered to court as evidence and the value must be able to be justified by the valuer. There is no legal recourse for an appraisal.


So, while an appraisal will suffice in most instances, where an accurate price of a property is required, a Valuation should be sought. Do not let a Sydney buyers agent or real estate agent make you think that they can provide you with a valuation unless they are also a registered valuer. There is a big difference between the two terms. Good real estate agents and good buyers agents know the difference and do not use the two terms interchangeably.

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