Understanding Property Valuation in Melbourne, Australia – A Guide by Empire 8 Property

October 3rd, 2023

When it comes to real estate investing, “valuation” is a term that often causes confusion. How does it differ from market price? This is a frequent hang-up for home owners and buyers. In this piece, Empire 8 Property looks to demystify property valuations – what they mean and why they matter for residential properties in Melbourne. Clarifying valuations empowers more informed investing decisions.


Valuation vs. Market Price


Before we delve further into the realm of property valuations, it’s crucial to make a clear distinction between two fundamental ideas: property valuation and market price. When inquiring about a property’s worth, individuals often consider a variety of factors, such as recent nearby property sales, input from real estate professionals, or evaluations conducted by financial institutions. Let’s take a closer look at these disparities.


Bank Valuations


Banks play a pivotal role in property transactions. Whether you’re refinancing a loan or seeking a new one for a property purchase, banks will require a valuation of your property. Why? Banks need to ensure they lend an appropriate amount, aligning with the property’s actual value. They must protect their interests, ensuring they don’t approve loans that exceed a property’s true worth or inflate property values, potentially causing financial instability down the road.


Bank valuations often tend to be slightly lower than market values, typically differing by around 5% to 10%. This conservative approach helps banks mitigate risks and safeguard their investments. If you require in-depth information on bank valuations, consulting a mortgage broker can provide valuable insights. Remember, though, that a bank’s valuation does not necessarily reflect your property’s market value.


Real Estate Agent Valuations


When you’re considering selling your property, real estate agents come into the picture. They will provide you with a comparative market analysis (CMA) based on recent sales in your neighborhood. This analysis forms the basis for their suggested selling price, often presented as a range. It’s worth noting that real estate agents may aim to win your business by suggesting a higher selling price than what the market might indicate.


For instance, if the market suggests a property could sell for $550,000, an agent might propose a range of $560,000 to $570,000 to make your property more enticing. However, some seasoned agents possess an accurate understanding of market dynamics and can offer remarkably precise valuations.


The True Market Value


Ultimately, the market dictates a property’s actual value. Irrespective of bank valuations or real estate agent estimates, the market’s response when you list your property for sale is what truly matters. It doesn’t matter what the bank thinks or what an agent suggests; when your property hits the market, buyers determine its worth.


The market value emerges when a willing buyer signs a contract, pays a deposit, and finalizes the purchase. This transaction reflects the property’s true market value at that specific point in the property cycle.


In the world of property investment, understanding property valuations and market prices is crucial. While banks, real estate agents, and experts can provide their perspectives, it’s the market that ultimately decides a property’s value. Empire 8 Property believes in empowering you with knowledge to make informed decisions in the dynamic Melbourne property market.


If you have further questions or wish to discuss property valuations in more detail, feel free to contact us at 0433 213 993. We’re here to assist you on your property investment journey.