The Importance of Property Valuations
Category Expert Insight
The Importance of Property Valuations
The subject of a property valuation can be overwhelming and often seem daunting if you are unsure as to what it is and why they are needed or carried out. In this article Seeff Properties covers the basics of what a valuation is, why they are needed and how they are conducted.
What is a Valuation?
In broad terms, a property valuation is a guideline of the true open market value of the property. The value is based on several internal and external factors including the location of the property, size and condition, amongst other things. Valuations are carried out by qualified and registered valuers and are required for several reasons. The valuation of the property is not necessarily the actual price at which a property will sell for (that could be influenced by buyer perceptions), it is merely a professional estimation of the worth of the asset.
If you are looking to sell your property, then a valuation will give you a guide as to the fair market asking price for that property. On the other hand, if you are looking to buy a property and require bank financing, you, as the buyer, will be required to provide a valuation report to the bank to determine the amount of the loan.
Valuations are a key element of making informed decisions when investing in property or when disposing of property assets. The valuer will carry out an onsite survey and, combined with documents supplied relating to the property (such as Title Deeds), draft the valuation report for the client. The valuation report will detail the open market value of the property, the forced sale value and the insurance replacement value.
Valuers are professionals who work to a set of international standards that govern the industry. Valuers in Botswana should be registered with the governing bodies which ensures that clients rights are protected and that there is a right of recourse with the ethics and practice of the valuer. International standards are set out to ensure that there is consistency across the industry. Valuation fees are prescribed by the Real Estate Professionals Act which is regulated by the Real Estate Advisory Council. Professional valuers adhere to these fees and ethics that governs their standards.
Why are Valuations Necessary?
Carrying out a professional valuation on a property asset will be necessary for a variety of reasons including bank financing, property sales, property insurance and investment analysis. Anyone buying or selling a property asset (be it a home, an office building or a plot of land) will at some stage need to be familiar with the valuation process.
- Bank Requirements for Mortgage / Home Loan
This is probably one of the most common reasons for having a valuation carried out. When a bank lends money by way of a Home Loan they need to be sure of the value of the property that is securing the loan. The loan amount cannot be based on the asking or offer price made on the property but rather on the actual value of said property.
In a property transaction where bank financing is required, it is the responsibility of the buyer to provide the property valuation (if the seller does not already have a recent one). The banks generally operate with a panel of pre-approved valuers that they accept valuations from. It is worth speaking to your bank prior to engaging a valuer to start the process.
In an instance whereby a property owner needs to raise equity from the property that they already own (in other words, remortgage their property), they would need to provide a recent valuation report of that property. Valuation reports generally have a 12-month validity period so property owners would need to be aware of the lifespan of their property valuation when starting this process.
- Property Insurance
All insurance underwriters would need to have a valid valuation report when determining the insurance cover amount of a property. A property owner would need to ensure that they have enough insurance cover in place in the event of a partial or total loss of their asset. If a property is not adequately insured (using a valuation) the owner could experience a huge financial loss. The valuation report will detail the insurance replacement value of the property, and this will be used to determine the insurance cover amount and premiums. The insurer may also require the submission of a new valuation report at certain intervals (often at 3-year intervals) when insurance policies are on-going or renewed.
- Property Investments
Property and asset investors will rely on valuation reports to inform them of the actual value of properties they either want to acquire or dispose of. An institution or company holding a portfolio of properties may need the entire portfolio valued to highlight which assets are worth keeping and which need to be sold off.
Companies that own property assets would also need to have a valid property valuation for accounting purposes.
When engaging a valuer to carry out a valuation it is advisable to ensure that you provide as much information as possible in order for the valuation to be carried out promptly and efficiently. This includes such documents as Title Deeds, building plans, any planning permissions applied for or granted and any other documentation that relates to the property and land. It is also important to make sure that the valuer is given access to the property in order for the on-site inspection to be conducted.
In summary, the valuation process is a hugely important process to property owners and the valuation report provides detailed information relating to the current open market value of the asset. This information can be required in several instances. As with anything relating to property, or any asset that you may own, it is always worth your while ensuring that your professional service provider is duly qualified and registered with a regulatory authority. This could end up saving you a lot of time and money further down the line. If you would like to learn more about the valuation services offered by Seeff Properties, please contact the office on 393 9372.
Author: Seeff Properties Botswana
Author: Seeff Properties Botswana
Beyond your expectation