What Property Buyers Need to Know About the Contract for Sale #42: What are the steps to confirm property valuations?
Introduction
Property valuations are a critical component of any property transaction in New South Wales (NSW). Accurate valuations provide an objective assessment of a property's market value, which is essential for buyers, sellers, lenders, and investors. Confirming a property valuation helps ensure a fair transaction, avoid overpayment or underpayment, and secure financing. This section outlines the steps to confirm property valuations in NSW, their importance, and how to navigate the valuation process effectively.
Importance of Confirming Property Valuations
- Ensures Fair Market Value: Confirming a property valuation helps establish the fair market value, ensuring that the price reflects current market conditions, property features, and comparable sales.
- Secures Financing: Lenders require a formal valuation to determine the property's worth and ensure adequate security for a mortgage or loan. A confirmed valuation is essential for obtaining financing approval.
- Avoids Overpayment or Underpayment: Accurate valuations protect buyers from overpaying for a property and sellers from accepting less than the property’s true value.
- Facilitates Investment Decisions: For investors, confirming property valuations is crucial for assessing potential returns, rental yields, and capital growth prospects.
- Reduces Risk of Disputes: An objective valuation minimizes the risk of disputes between buyers, sellers, and lenders by providing a reliable basis for the property's worth.
Steps to Confirm Property Valuations in NSW
To confirm a property valuation in NSW, consider the following steps:
- Engage a Qualified Valuer: Hire a qualified, licensed valuer accredited by the Australian Property Institute (API) or the Royal Institution of Chartered Surveyors (RICS). Ensure that the valuer is familiar with the local market and has experience with the type of property being valued.
- Request a Formal Valuation Report: Obtain a formal valuation report from the valuer, which provides a detailed analysis of the property's market value. The report should include the property's description, location, condition, comparable sales, and any factors affecting its value.
- Review the Valuation Report Carefully: Examine the valuation report thoroughly to understand the factors influencing the assessed value. Pay attention to the methodology used, the quality of comparable sales data, and any adjustments made by the valuer.
- Compare with Recent Sales Data: Compare the valuation with recent sales data for similar properties in the same area. This can help validate the valuation by ensuring it aligns with market trends and comparable properties.
- Check with Local Real Estate Agents: Consult with local real estate agents to get additional insights into current market conditions, property demand, and typical selling prices for similar properties.
- Consider a Second Opinion: If there are concerns about the initial valuation, consider obtaining a second opinion from another qualified valuer. This can provide additional assurance or highlight any discrepancies.
- Use Online Property Valuation Tools: Use online property valuation tools, such as CoreLogic or RP Data, to get an estimate of the property's value based on recent sales data and market trends. While these tools are not a substitute for a professional valuation, they can provide useful benchmarks.
- Review Government Valuations: Check the NSW Valuer General’s website for the latest land value assessments, which provide a baseline for the land component of the property’s value. These assessments are used for calculating land tax and council rates.
- Consult with a Financial Advisor or Solicitor: Seek advice from a financial advisor or solicitor to understand the valuation's implications for your specific transaction, financing, or investment goals.
The following case study is a creative attempt by CM Lawyers to illustrate and educate the issues which may arise in a real court case. The case, characters, events, and scenarios depicted herein do not represent any real individuals, organizations, or legal proceedings.
Case Study: Confirming Property Valuations in NSW – An Overvaluation Dispute
Case Overview
In the case of Davies v. Regional Valuation Services [2023] NSWSC 128, a property buyer contested the accuracy of a valuation that was significantly higher than the actual market value. Mr. Davies, the buyer, agreed to purchase a rural property in the Southern Highlands for $1.2 million, based on a valuation conducted by Regional Valuation Services.
Behaviour of the Participants
After signing the contract, Mr. Davies noticed discrepancies between the valuation and recent sales data for similar properties in the area. He engaged a second valuer, who assessed the property's value at $950,000, considerably lower than the initial valuation. Mr. Davies raised concerns with Regional Valuation Services, who defended their report but did not provide satisfactory explanations for the discrepancies.
Unsatisfied, Mr. Davies sought legal advice and decided to challenge the valuation through the NSW Supreme Court, arguing that the inflated valuation had led him to overpay for the property.
Legal Process and Court Involvement
The court reviewed both valuations and found that the initial report by Regional Valuation Services lacked sufficient comparable sales data and had made inappropriate adjustments that inflated the property's value. The court ruled in favor of Mr. Davies, ordering Regional Valuation Services to compensate him for the difference in value, amounting to $250,000, plus legal fees.
Financial Consequences
The dispute resulted in significant financial implications for both parties. Mr. Davies, although successful in his claim, incurred legal fees of $30,000 and experienced delays in the property transaction. Regional Valuation Services faced compensation payments of $250,000 and reputational damage that affected their business operations.
Statistics
- Disputes Over Valuations: Approximately 5% of property transactions in NSW involve disputes over valuations, often related to discrepancies between valuations and market data.
- Frequency of Second Opinions: Around 20% of property buyers in NSW seek a second opinion on valuations to ensure accuracy and reliability.
- Impact on Financing: About 10% of property buyers in NSW face challenges securing financing due to discrepancies between the purchase price and the valuation.
- Cost of Valuation Reports: The average cost of a professional property valuation report in NSW ranges from $300 to $800, depending on the property type and location.
- Use of Online Valuation Tools: Approximately 70% of property buyers in NSW use online valuation tools as part of their due diligence process.
- Importance of Qualified Valuers: Around 90% of property transactions in NSW involve valuations conducted by qualified, licensed valuers.
- Impact on Property Value Disputes: Properties with disputed valuations may experience a 5-10% reduction in market value due to perceived risk and uncertainty.
References
Government Organisations
- NSW Valuer General – Property Valuation Services
URL: https://www.valuergeneral.nsw.gov.au
The NSW Valuer General provides information on property valuations, including the latest land value assessments and guidelines for understanding property values.
- Australian Property Institute (API) – Find a Valuer
URL: https://www.api.org.au/find-a-valuer
The API offers a directory of qualified, licensed valuers in NSW, ensuring that property owners and buyers engage professionals who adhere to industry standards.
- NSW Fair Trading – Property Valuation Information
URL: https://www.fairtrading.nsw.gov.au/housing-and-property/buying-and-selling-property/valuations
NSW Fair Trading provides resources on property valuations, including information on the valuation process and consumer rights.
- NSW Supreme Court – Property Law Cases
URL: https://www.supremecourt.justice.nsw.gov.au/Pages/sco2_property/property_cases.aspx
This page offers access to recent property law cases in NSW, including disputes over property valuations.
- CoreLogic – Property Data and Analytics
URL: https://www.corelogic.com.au
CoreLogic provides data and analytics tools for property valuations, including market trends, sales data, and property value estimates.
Non-Profit Organisations
- Justice Connect – Legal Help for Property Valuation Disputes
URL: https://justiceconnect.org.au/resources/property-valuation-disputes
Justice Connect offers legal resources and support for individuals facing disputes over property valuations, including guidance on seeking compensation or resolving disputes.
- Law Society of New South Wales – Property Valuation Guidance
URL: https://www.lawsociety.com.au/legal-help/property-law
The Law Society provides access to qualified solicitors who specialize in property law, including handling disputes related to property valuations.
- Tenants’ Union of NSW – Information on Property Valuations
URL: https://www.tenants.org.au
The Tenants' Union offers guidance on property valuations and their impact on tenants and landlords, including advice on understanding rights and resolving disputes.
- Australian Pro Bono Centre – Free Legal Resources for Property Issues
URL: https://www.probonocentre.org.au
The Australian Pro Bono Centre provides information on accessing free legal assistance for property valuation disputes and related issues.
- Community Legal Centres NSW – Support for Property Owners and Buyers
URL: https://www.clcnsw.org.au/legal-help/property-valuations
Community Legal Centres NSW provides free legal advice and support for property owners and buyers dealing with valuation disputes and related concerns.