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What factors go into a home appraisal?

What factors go into a home appraisal?

Before you get ready to sell your home or investment property, you may want to work out what kind of sale price you can expect. Whether you’re planning to use the money from the sale to fund your next property purchase, or if you have some other project in mind, appraising your property’s value before you sell can help you start planning your budget in advance.

A property appraisal from a real estate agent can quickly give you a better idea of your home’s potential sale price. By knowing some of the factors that could affect your property value, you may be able to make a few small changes that could make a big difference to your bottom line.

Is an appraisal the same as a valuation?

A property appraisal from a real estate agent is different to a property valuation conducted as part of a mortgage application. An appraisal is an estimate of how much a property could sell for at auction or privately, while a valuation is an assessment of whether a mortgage could be secured using the property’s value.

Real estate agents and valuers take different factors into account when making their assessments. Generally, a valuer is more likely to stick to just the facts regarding a property (e.g. property size, number of bedrooms, recent sales in the area etc.), while an agent’s appraisal may also consider some less concrete factors, such as the property’s appeal to buyers.   

What factors affect property value?

Some of the factors that could affect the value of residential property when an agent conducts an appraisal include:

  • Location, location, location: As per this old real estate saying, whether you’re planning to live in a property as an owner occupier, or rent it out as an investor, the property’s distance from public transport, shops, schools, parks, and other amenities can make a massive difference to its value.
  • Size: Bigger properties (including land size) tend to be more valuable than similar smaller properties, as they offer more living space and/or greater scope to renovate or develop the property.
  • Usable spaces: The more bedrooms, bathrooms, car spaces and so on that a property has available, the more use (and value) it may offer to owners or tenants.
  • Age and condition: Older properties have often stood the test of time, which can increase their value, though they’re more likely to require extra maintenance, especially if they’re old enough to have heritage considerations. Newer properties are more likely to be in pristine condition, though their value may not yet be firmly established.
  • Presentation: Small updates to a property’s look and feel can help buyers see the value it offers. This could be a fresh coat of paint, or new fixtures and fittings. Even just cleaning the windows and decluttering the space can help a buyer better appreciate a property at an inspection.
  • Kitchens and bathrooms: These rooms see a lot of use, and require more time, effort and expense to renovate or repair than most other rooms of a home. A well-presented and functional kitchen and bathroom, with reliable and high quality appliances, can make a big difference to a property’s value.
  • Storage space: Cupboards, built-in wardrobes, attics and basements that are easily accessible and efficiently laid out can help owners and tenants manage and organise their possessions, which can be very valuable to the right buyer.
  • Garden and landscaping: A well maintained garden and neat, well-presented exterior can give people a good impression of the property before they walk through the front door.
  • Recent sales: The sale prices of similar properties in the local area can help to indicate what a buyer may be willing to pay for your own property.
  • Future potential: Sometimes an average property’s potential for renovation, redevelopment or other improvements can make it more valuable to a buyer than you may expect.
  • Energy efficiency: According to the CSIRO and Nationwide House Energy Rating Scheme (as cited by CommBank), adding energy-efficient features to a home can reduce power bills by as much as $500 per year. With this in mind, adding solar panels and similar green technologies to a property could potentially affect its value.
  • Interest rates: It’s usually a good idea to compare home loan interest rates when you’re shopping for a mortgage, but did you know that they could potentially affect your home’s sale price? When rates are low, it may be possible for buyers to borrow more money to purchase property, which could in turn push up average property prices in some areas.

Beware of overcapitalising

If you’re renovating or otherwise updating your property with the goal of improving its potential sale value, it’s possible to go too far and overcapitalise. This is where you spend more on upgrading a property than you’ll likely make back for a raised sale price.

Where can I get a value estimate?

To help you get started estimating your property’s value, consider downloading a free property report from RateCity. This report uses available data on your property to provide a value estimate.

If you compare your property to similar properties that have recently sold in your area, you may be able to further refine your own property value estimate before you contact a real estate agent for an appraisal.

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This article was reviewed by Personal Finance Editor Georgia Brown before it was published as part of RateCity's Fact Check process.



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Learn more about home loans

What is my property value?

Your property’s value is how much your property is worth to a bank or mortgage lender, when it comes to securing a mortgage over a property and calculating the loan to value ratio (LVR).

A professional valuer assesses a property’s value based on data about the property, its sale history, and other recent sales in the area. The valuer may also visit the property to assess its condition in person.

A property’s value may be different to a real estate agent’s appraisal, which indicates how much a property may sell for. It’s also often different to a property’s sale price at auction or private sale, which shows how much a buyer thinks it’s worth in the current market. 

What is a property report estimate?

A property report estimate is an approximate calculation of a property’s value, found in an online property report. These estimates are typically based on the property’s age, size, location, and number of bedrooms, bathrooms and car spaces. The property’s history of previous sales, plus recent sales of similar properties in the local area, may also help to calculate the property’s current value. 

What is a valuation?

A property valuation is a formal assessment of how much your home is worth, to determine the Loan to Value Ratio (LVR) when you’re applying for a mortgage.

A valuation is carried out by a certified practicing valuer on behalf of a bank or mortgage lender, and is often based on available data about the property and recent sales of other similar properties in the local area. The valuer may also visit the property to assess its condition in person.

A valuation is typically different to an appraisal from a real estate agent, which is an informal estimate of how much a property could sell for at auction or via private sale.

What is an appraisal?

An appraisal is the process by which a qualified real estate agent conducts an inspection and assessment of a property in order to make an educated estimate of its value, typically in preparation of it being listed for sale. It is not to be confused with a valuation, which is conducted by a Certified Practising Valuer on behalf of a mortgage lender to determine the Loan to Value Ratio in relation to the borrow amount.

To begin the appraisal, the agent will start by visiting the property and assessing features such as the size, layout, number of bedrooms and bathrooms, quality of fixtures and fittings, and how well it has been maintained.

Next, the agent will use the findings to compare the property the with other similar properties in the area that have recently sold. In doing so, they are able to determine a more accurate appraisal that is representative of the current market demand.

Is it free to get your house appraised?

A house appraisal, in which a qualified real estate agent assesses a property to make an estimate of its value, is a service that is generally offered to homeowners free of charge.

Local real estate agents tend to offer free property appraisals to homeowners as a way to build a relationship with them, and potentially secure the listing if the homeowner has plans to sell.

It can also be a good opportunity for the homeowner to gauge the agent’s level of expertise and determine whether or not they would be an ideal listing agent for the sale of their home.

You may also like to consider using an online service like RateCity to get a free property value report. Similar to an appraisal, the report is a computer generated valuation based on a significant amount of data and insights, and can provide details including the estimated property price and information about similar properties for sale or recently sold in the area.

How much is my house worth?

Your house’s worth may depend on its age, size, location, and overall condition. This may be affected by its number of bedrooms, bathrooms and car spaces, as well as its previous sale history, plus recent sales of similar properties in the local area. A property report provides a summary of this information to help you make an estimate.

You may get a different estimate of how much your house is worth if you ask a real estate agent, a professional valuer, or a property purchaser at an auction or private sale. This is because an appraisal from a real estate agent is an estimate of how much your house could sell for; a valuation is a professional assessment of whether your home’s value is enough to secure a mortgage; and a sale price is how much a buyer thinks your house is worth on the current market. 

What is a valuation and valuation fee?

A valuation is an assessment of what your home is worth, calculated by a professional valuer. A valuation report is typically required whenever a property is bought, sold or refinanced. The valuation fee is paid to cover the cost of preparing a valuation report.

What are the features of home loans for expats from Westpac?

If you’re an Australian citizen living and working abroad, you can borrow to buy a property in Australia. With a Westpac non-resident home loan, you can borrow up to 80 per cent of the property value to purchase a property whilst living overseas. The minimum loan amount for these loans is $25,000, with a maximum loan term of 30 years.

The interest rates and other fees for Westpac non-resident home loans are the same as regular home loans offered to borrowers living in Australia. You’ll have to submit proof of income, six-month bank statements, an employment letter, and your last two payslips. You may also be required to submit a copy of your passport and visa that shows you’re allowed to live and work abroad.

Cash or mortgage – which is more suitable to buy an investment property?

Deciding whether to buy an investment property with cash or a mortgage is a matter or personal choice and will often depend on your financial situation. Using cash may seem logical if you have the money in reserve and it can allow you to later use the equity in your home. However, there may be other factors to think about, such as whether there are other debts to pay down and whether it will tie up all of your spare cash. Again, it’s a personal choice and may be worth seeking personal advice.

A mortgage is a popular option for people who don’t have enough cash in the bank to pay for an investment property. Sometimes when you take out a mortgage you can offset your loan interest against the rental income you may earn. The rental income can also help to pay down the loan.

When do mortgage payments start after settlement?

Generally speaking, your first mortgage payment falls due one month after the settlement date. However, this may vary based on your mortgage terms. You can check the exact date by contacting your lender.

Usually your settlement agent will meet the seller’s representatives to exchange documents at an agreed place and time. The balance purchase price is paid to the seller. The lender will register a mortgage against your title and give you the funds to purchase the new home.

Once the settlement process is complete, the lender allows you to draw down the loan. The loan amount is debited from your loan account. As soon as the settlement paperwork is sorted, you can collect the keys to your new home and work your way through the moving-in checklist.

Why does Westpac charge an early termination fee for home loans?

The Westpac home loan early termination fee or break cost is applicable if you have a fixed rate home loan and repay part of or the whole outstanding amount before the fixed period ends. If you’re switching between products before the fixed period ends, you’ll pay a switching break cost and an administrative fee. 

The Westpac home loan early termination fee may not apply if you repay an amount below the prepayment threshold. The prepayment threshold is the amount Westpac allows you to repay during the fixed period outside your regular repayments.

Westpac charges this fee because when you take out a home loan, the bank borrows the funds with wholesale rates available to banks and lenders. Westpac will then work out your interest rate based on you making regular repayments for a fixed period. If you repay before this period ends, the lender may incur a loss if there is any change in the wholesale rate of interest.

What is a secured home loan?

When the lender creates a mortgage on your property, they’re offering you a secured home loan. It means you’re offering the property as security to the lender who holds this security against the risk of default or any delays in home loan repayments. Suppose you’re unable to repay the loan. In this case, the lender can take ownership of your property and sell it to recover any outstanding funds you owe. The lender retains this hold over your property until you repay the entire loan amount.

If you take out a secured home loan, you may be charged a lower interest rate. The amount you can borrow depends on the property’s value and the deposit you can pay upfront. Generally, lenders allow you to borrow between 80 per cent and 90 per cent of the property value as the loan. Often, you’ll need Lenders Mortgage Insurance (LMI) if the deposit is less than 20 per cent of the property value. Lenders will also do a property valuation to ensure you’re borrowing enough to cover the purchase. 

What is a line of credit?

A line of credit, also known as a home equity loan, is a type of mortgage that allows you to borrow money using the equity in your property.

Equity is the value of your property, less any outstanding debt against it. For example, if you have a $500,000 property and a $300,000 mortgage against the property, then you have $200,000 equity. This is the portion of the property that you actually own.

This type of loan is a flexible mortgage that allows you to draw on funds when you need them, similar to a credit card.

What is equity and home equity?

The percentage of a property effectively ‘owned’ by the borrower, equity is calculated by subtracting the amount currently owing on a mortgage from the property’s current value. As you pay back your mortgage’s principal, your home equity increases. Equity can be affected by changes in market value or improvements to your property.