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Value in Your Property

Greville Prabst FAPI FRICS is CEO and Director of WBP Property Group. With extensive experience in the property and valuation industries. Greville regularly provides property value and market advice to corporate and private investors as well as the media.

Many people know the basics of what can impact the value of their property - overhead power lines and busy roads versus sea/tree views and a short stroll to the local coffee shop. To gain a better idea of how to improve the value of your property, it is worthwhile taking a look at what professional valuers look for when inspecting a property and how they arrive at the valuation figure.

The field of property valuations is often described as an art and not a science because it takes into consideration so many tangible and intangible aspects of a property and it's surrounds. Valuations are a professional opinions based on available evidence; valuers do not set new benchmarks. They must be guided by what has been sold within the past six months.

The valuation process starts with a physical inspection of the property. The valuer walks around and through the property taking measurements and notes the number and type of rooms, fixtures, fittings and improvements. The valuer then employs three methods to further analyse the property in order to come up with a value range: direct comparison, summation, and capitalisation of the net income methods.

The direct comparison method involves researching recent sales of similar properties in the immediate surrounds. This is referred to as 'comparable sales'. The subtle and not so subtle differences are taken into consideration to determine the extent to which these comparable sales can be used as a guide to value the subject property. In this way, apples are compares with apples and necessary adjustments can be made for the bruises.

The summation method is the land value plus the depreciated value improvements. This comprises the dwelling plus ancillary features such as garage, pergola and swimming pool. Land value takes into consideration size, shape, topography, slope, location and surrounding infrastructure and amenities. The value of improvements incorporates the style, age, architectural features, layout, number and purpose of rooms, renovations and the overall appearance and condition of the subject property.

The combination of these two methods allows the valuer to arrive at a valuation range. The skill and experience of the valuer allows him to consider any risks associated with the property or it's location and then be able to refine the valuation figure accordingly.

The valuer may also check these values by way of capitalising net income. This involves applying an investment yield to assessed market rental of the property to derive the current market value. This method is commonly used when valuing investment properties.

How to add value to property

In addition the sweeping views and swimming pools, there are some property features that can push up values. Architectural style is one key. Period homes tend to appreciate and hold their value the best over time. These homes are often unique and costly to replace. Some popular period styles include Federation, Victorian, Edwardian, Queen Ann and Art Deco.

From an internal perspective, the design and functionality of living areas, bedrooms and bathrooms are important. The following list outlines features that can enhance the value of a home.

  • Period Features: high ceilings, double brick construction, fireplaces and ornamental features
  • Large, eat-in kitchens
  • Two or more bathrooms (there is a trend towards larger bathrooms)
  • Large separate laundry
  • Large open plan living
  • Relatively large block within 20km of the CBD
  • Close proximity to shops, schools and lifestyle amenities
  • Quiet street
  • Improvements such as outdoor entertainment area, swimming pool and extra bedrooms
  • Generally neat and well-kept appearance both inside and out

A warning, however to property owners trying to improve the value of their home is to be careful not to overcapitalise. This means investing too much in the improvements of your property to the point where you stop adding value and risk not recouping your money when you sell. There is an old saying 'The king does not want to live in the old king's castle'

Another important tip is to ensure the valuer has the skill and experience required to provide an accurate and reliable valuation. Qualified and licensed valuers who maintain membership of the Australian Property Institute should be used.

Valuations are required or useful for many purposes. These include property financing and refinancing, accounting applications such as calculating stamp duty, GST or capital gains tax, rental determinations for investment properties and family law purposes. An independent valuation before buying or selling a property can help negotiate the best price, reduce risks and save money.

This article is reprinted from our quarterly published "Financial Matters" Newsletter, Spring 2006 issue.

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