Article contributed by Joshua Devitt – Herron Todd White
Property valuers are instructed by Legal Professionals to complete a range of valuations for legal purposes. Valuations for legal purposes include, but are not limited to, Probate and Estate matters, Litigation support, Family law and partnership dispute settlements, stamp duty and family transfers valuations.
A valuation, as defined by the Australian Property Institute (API), is an “evidence based process for assessing the monetary value of an asset at a specified date, that is legally defensible and undertaken by a qualified professional valuer…”
Value may have various definitions such as market value, fair value, indemnity value, market value in accordance with statutory requirements or assumptions. However, the one most often quoted and used for real estate purposes in Australia is Market Value. Market Value is defined by the International Valuation Standards Committee (IVSC) and has been adopted by the Australian Property Institute (API) Inc. as:
“The estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arms length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion.”
Often confused are the different meanings for the terms ‘value’ and ‘price’. While ‘value’ is what a typical person would pay for something, ‘price’ is what someone actually paid. The market value of the subject property needs to be supported by comparable sales evidence within the valuation report.
The Direct Comparison Approach is considered the most appropriate methodology for valuers to assess the market value for a single use residential property. In this approach the property to be valued is directly compared to recent sales of similar properties and takes into account the effect that individual features have on the overall property value. The valuer analyses comparable sales for similarities and differences with the subject property and makes the necessary adjustments based on their knowledge and experience.
Factors such as location, land area, size and age of dwelling, views, topography and ancillary items are all taken into account in analysing comparable sales with the subject property. Some of these factors for comparison can be seen as either objective (IE: land area, zoning) or subjective (IE: location, view, street appeal). In establishing market value all valuations value have an element of subjectiveness to them as, generally speaking, no two properties are identical. The practise of valuation is regarded as an art and not a science.