Misconceptions on Property Valuations

When seeking a property valuation, people may have expectations on the process. This may include expectations on the methodology, evidence or processes involved in determining a property’s value. Some of these misconceptions are as follows:

1. Swimming pools can add (or take away from the value of a property). Whether a swimming pool adds or detracts from the value of the property is dependent on whether a person values a swimming pool or not. Often times, a swimming pool can be seen as detracting from the value of the property as managing a pool can be time and resource intensive. Further, establishing and maintaining landscaping around a pool will be a further consideration that will require further time and resources.

On the other hand, the location of the property may determine whether a swimming pool is sought after, especially if the location is in a high temperate area or is in an area where people live in to experience a particular active lifestyle.

2. Every small improvement will increase the value of a property. Whether it is a new coat of paint to the interior walls of a property, or the addition of a timber deck, an improvement may or may not increase the value of a property. From a property valuers perspective, a property’s value is dependent on the comparables used to determine the current market of the property. For instance, if significant renovations are made to a subject property and the perception is that the condition and/or finish is significantly better than comparable properties, the valuer may assume that all other things being equal, the subject property will demand a higher value. On the other hand, if renovations on a subject property are insignificant and does not differentiate the property from other comparables, the value add to the subject property may be negligible.

3. Property prices will always increase. Historically, the property market has experienced ebbs and flows with regards to house prices. Although most parts of Australia experienced a housing boom during the 2000’s, property prices cannot increase forever. The property market is still susceptible to domestic and international economic conditions, government regulations and demand and supply of assets amongst other things. These external considerations can lead to downward shifts of property values. Property prices and rents in Western Australia for instance have stagnated after the mining boom, with less demand for Australian minerals leading to less need to travel to and reside in Western Australia.

4. Market value is the same as sale price. Market value is a calculated estimate of what a property is likely to sell for in a rational and competitive housing market. What the market value does not account for are speculative aspects of the property market. For instance, a property may be worth $500k based on comparative sales, however a buyer may want to purchase the property for above market value in an auction as the buyer may feel a personal connection to the property.

5. The valuation does not reflect the presentation and design of my home. A homeowner may opt for a particular design or presentation of a home, expecting the value to increase as a result. When it comes down to it, whether a particular design or presentation increases the value of a home is subjective. Not every person is going to like the presentation and design of a home.