The Active Home Loan Manager

Comparing Property Valuations and Property Appraisals

Your real estate agent may appraise your property. However, this isn’t the same as the valuation a lender will carry out. Let’s look at the differences between the two.

When you put your home up for sale, you’ll probably have a real estate agent carry out an appraisal. This may result in a figure that you’re happy with, but you’ll find that most lenders carry out their own valuations.

Often, your valuation will be less than the appraisal figure. To understand why, you need to know about the differences between an appraisal and a valuation.

What is a Real Estate Appraisal?

A real estate agent will carry out an appraisal of your property to give you a rough guide to its selling price.

This means they’re estimates. Your agent will take several factors into account when creating an appraisal. For example, they’ll look at recent sale prices in your area and combine that with their own knowledge of the location.

The key thing to remember is that an appraisal has no legal bearing. You don’t even need to have one to sell your property. However, many sellers choose to so they can get an idea of the state of the property market ahead of their efforts to sell.

What is a Valuation?

A valuation is a much more formal process. Lenders will use the services of a valuer to get a precise figure for the value of your home. This allows them to determine the size of the home loans that they will offer to any potential buyers.

Valuers must complete extensive training to develop the skills they need to come up with accurate valuations. As a result, they’re better at taking every factor related to the property into account when coming up with a number. These factors include all of the following:

  • Your property’s size
  • The building’s current structural condition
  • Your property’s location
  • The features that the home has to offer
  • Any issues or faults related to the building’s construction
  • Zoning issues that may apply to your property
  • Any other issues that could affect a buyer’s interest in the property

You’ll also have to pay for a valuation, whereas appraisals generally don’t come with a fee. Expect to pay somewhere in the region of $300 to $500 for the valuation. In return, you’ll receive a full report that explains the decisions the valuer has made to reach their conclusion.

Do You Need Both?

You will need a valuation in several circumstances. For example, you’ll need one if you want to refinance your home loan, or if you’re settling the sale of your property. You may also need to carry out a valuation to determine the value of the estate a loved one leaves behind when they pass.

Appraisals are a different matter. You don’t need to get an appraisal before selling your home. However, they can reveal certain things that may prove useful to you. For example, an appraisal will give you a general idea of the state of the property market. Furthermore, you can use appraisals to choose between real estate agents. If one agent’s estimate is out of line with all the rest, that agent may have just highlighted a lack of knowledge about your local area.

There’s no reason not to get an appraisal before a valuation. Most real estate agents offer appraisals without any charge, so take advantage of them.

What to Do Next

You may be getting valuations and appraisals if you’re thinking of selling your home. However, you may also need them if you choose to refinance your home loan. If you want to do the latter, make sure you follow these steps:

  • Read our guide to mortgage refinancing
  • Work out if refinancing will save you money
  • Discuss your options with one of our mortgage brokers.

This information is general in nature and you should always seek professional advice when making financial decisions.

This information in this article is general only and does not take into account your individual circumstances. It should not be relied upon to make any financial decisions. uno can’t make a recommendation until we complete an assessment of your requirements and objectives and your financial position. Interest rates, and other product information included in this article, are subject to change at any time at the complete discretion of each lender.

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Alexi Neocleous

With over 20 years experience, Alexi has written extensively a wide cross section of financial topics. These topics range from financial planning, mortgages, property commentary and all points in between.

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