Buyers and sellers often get confused when it comes to property valuations.

There are three common forms of property price estimates, only one of which is a valuation:

  • a market appraisal from a real estate agent
  • an automated valuation report (AVM)
  • a sworn, often referred to as a bank, valuation

The first is what we as real estate agents or sales representatives do which is a market appraisal.

A market appraisal is an agent’s estimation of the likely selling price or suggested marketing price range for a property, but it’s not a sworn valuation. Market appraisals must be based on up-to-date comparable sales evidence. The better an agent knows an area, the more accurate that market appraisal should be. But some agents will allow a seller’s expectations, or indeed their own motivations, such as wanting to win a listing, to influence those estimates – this is how differences arise. 

There are times where it can be genuinely difficult to estimate the likely selling range for a property, particularly if it’s a unique home or offering in the market.

The second is an automated valuation report, or AVM for short.

Many buyers mistakenly believe that these reports, which are available to purchase online or provided for free by banks or brokers, are bank valuations – they’re not. It’s simply a computer spitting out a report based on randomly selected homes of the same number of beds and baths in the suburb. If every 3×2 is built in the same era and looks the same as every other 3×2 in the suburb, they have some merit. In older inner-city areas, where there’s significant variation between properties, they can be wildly inaccurate. I don’t use them and buyers should be very circumspect about relying on them.

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The last is a sworn valuation provided by a licensed property valuer.

Aside from an actual sale, this is really the only ‘real’ valuation of a property. When you’re buying a home, the bank will usually order a sworn valuation for the property which involves a licensed valuer coming out to inspect the property and preparing a formal written valuation report. Sworn valuations can also be required for tax, estate, and property settlement purposes and hold more weight than a market appraisal prepared by an agent. That said, it’s not uncommon for valuers to consult with local real estate agents in preparing valuations.

There’s a common misconception that sworn, or bank, valuations, are conservative and likely to be less than the actual market value of the home. This isn’t true. In 99% of cases, a sworn valuation ordered by the bank for finance approval purposes will come back at the agreed purchase price for a property – if they didn’t we’d have some problems! We also come across sellers that have had a bank or sworn valuation done that is too high too – they’re the challenging ones as they’ve created unrealistic expectations for sellers which can be difficult to counter.

So just to recap.  Real estate agents provide market appraisals, AVM’s are simply computer-generated estimates, and the only ‘proper’ valuation is a sworn one provided by a licensed valuer that’s actually attended the property.

But ultimately, the only true test of the value of a property is what a buyer is prepared to pay for it – the buyers are the ones with the cheque books, not the agents, not the valuers, and not the banks.

Natalie Hoye is the Founder and Licensee of Red Fox Property Group – a boutique agency doing things differently in the suburbs surrounding Beaufort Street. We call it ‘real estate alchemy’: a genuine blend of science and intuition, marketing and magic, head and heart. The Red Fox Way. And we’d love to chat with you about your local real estate needs. Call us now on 0405 812 273.