Property valuation is the process which determines the economic value of real estate properties. Property valuation typically seeks to determine fair market value, the price at which a knowledgeable seller is willing to sell the property and a knowledgeable buyer is willing to purchase it.

In other words, it assumes both parties have all the relevant information and neither is forced to buy or sell.

Fair market value is not always equal to the sales price. For example, a short sale of real estate may not bring fair market value because the seller is distressed and must sell the property right away.

Potential buyers know this so they have a bargaining advantage and usually get the property for less than market value.

Valuing property accurately is very important to sellers, home purchasers, lenders, and real estate investors.

So, now we have a fair idea what actually property valuation is. Let’s now take a look at why it’s important?

Importance of Property valuation:

#1.Reduces Risk: On-site appraisals are the most effective way to reduce lending and property investment risk. A visual on-site appraisal and on-site collection of data conducted by a third-party qualified appraiser will determine the occupancy, the condition of the property, the neighbourhood characteristics, and ultimately, the existence of the property. This due diligence ensures that the decision-maker has a reliable appraisal report with a well-supported opinion of value.

 

#2.Detects & Prevents Fraud: Understanding the dynamics of the transactions (e.g., list prices, sales prices; number of days on the market; who the buyers and the sellers are properties that have exchanged within a short period of time, etc.) can provide valuable information on market trends. It also assists in fraud detection and prevention – an increasingly significant and costly challenge for the lending industry.

 

#3.Provides trusted opinion of property value: An independent and expert opinion based on comprehensive valuation methodologies go much deeper than a review of comparable properties that have sold in the same neighbourhood or an automated valuation model based on questionable data.

An unbiased professional opinion adds a layer of objectivity to a real estate decision. This impartiality is critical – especially if emotions, time and money might cloud your judgement.

Overall, the role of a professional designated appraiser is an important one. Although it may go unnoticed and happen behind the scene between lenders, insurers, mortgage brokers or appraisal management companies, it is a critical component of the success of the real estate industry.

From this we can conclude that property valuation plays a very important part not only for buying or selling of properties but it also helps the economy. You just have to look at emerging economies with no valuation professionals or association to realize it!

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