House Valuations: How Often Should You Get Them Done?
Most homeowners have had their house valued at some point, usually because their bank or insurance company has requested it. Robin Graham walks us through the key points in a homeowner’s journey when a house valuation is recommended.
May 25, 2022
Most homeowners have had their house valued at some point, usually because their bank or insurance company has requested it.
But house valuations aren’t just about ticking boxes to secure finance or insurance. There are several other times when it’s very important to have your home valued.
Robin Graham walks us through the key points in a homeowner’s journey when a house valuation is recommended.
Buying a house
When you’re buying a house, the bank will typically ask for a valuation before giving you pre-approval for the mortgage.
A house valuation isn’t always required – it depends on your level of borrowing, your serviceability, what the property market is doing and what’s happening with interest rates – but first-time purchasers will generally need a valuation done to satisfy the bank.
Most purchasers see the valuation as an additional (and perhaps unnecessary) expense. But even if you don’t need a valuation to secure finance, it’s always wise to get one done to ensure you’re not overpaying for the property.
You might think you know the market well, but it’s hard to be completely impartial when buying your own house. When there are emotions involved, it’s easy to get carried away.
In addition to valuing the property, valuers will sometimes pick up things that need further investigation, like structures that aren’t completely within the property’s boundary lines. It’s better to be aware of these sorts of issues before the purchase goes ahead so that you can back out or renegotiate accordingly.
In comparison to the cost of the house – probably one of the biggest purchases of your lifetime – the cost of a valuation is fairly minimal. Whether you’re doing it to satisfy the bank or just for peace of mind, it’s an essential part of the due diligence process.
Building a house
If you’re building a house, the bank will typically ask for valuations at three stages:
- Value of the bare land (before any building work starts)
- Value of the house and land, as proposed (before any building work starts)
- Value of the house and land on the day of inspection (after building work is complete)
Before any building work starts, it’s a good idea for you and the valuer to sit down together and make sure everyone is on the same page as to what the finished product is going to be – and how much it’s likely to be worth.
When you work with a valuer during the planning stages, you’ll be able to see whether you’re overspending (in relation to value) and can adjust the plans accordingly. If it’s possible you might sell the house within a few years of completing the build, it’s important to ensure you’re not spending more than the house will be worth.
With new builds, many people underestimate the added value of good landscaping. Landscaping may not be a priority for you right now, particularly if you’re stretching yourself financially to complete the build, but it does add a significant amount of value if it’s done right. If you can’t afford to complete landscaping at the time of the build, you should be aware that this may affect your value (although it’s something you can easily do later to increase the value of your house).
Homeowners often refinance (i.e. replace their mortgage with a new one to borrow additional money) when they want to:
- Undertake a renovation or extension
- Make a large purchase (such as a new car, boat or holiday home)
- Help their children get onto the property ladder
If you’re leveraging off your property to access additional lending, the bank will generally want to have your home valued first.
Homeowners are often reluctant to get a house valuation done when refinancing, because it’s an added expense at a time when they’re trying to access additional money. But if you’re embarking on a renovation or extension, it’s wise to get a valuation done, regardless of whether the bank requires it.
If you’re undertaking renovations or an extension, you’d usually have valuations done at two stages:
- Value as expected (before the renovation work starts)
- Value on the day of inspection (with all the renovations complete)
The pre-build valuation is particularly important, because it allows you to see whether you’re going to be overspending (i.e. spending more than the value the renovations will add to your property).
In the last couple of years, with property prices increasing, renovations have certainly been worthwhile (from a value perspective) in about 90% of cases. But with build costs rising and the property market cooling off, we're coming into a period where, in many cases, the cost of renovations is going to exceed the added value to your property.
In saying this, if you overspend by $20,000-30,000 on renovations, this may not be an issue for you in the long term. If you intend to be living in the house for at least another 10-15 years, you can't put a dollar value on the enjoyment of having those renovations done. Unless you’ve overspent significantly, the cost of the renovations will most likely come into line with the added value over a 10-year period.
Insuring your house
If you have house insurance, which every homeowner should, we recommend getting your house valued every two to three years to ensure you have adequate cover in place.
If your house burned down, your insurance should cover the cost to reinstate the modern equivalent of your home, including an allowance for demolition and clearing the site.
When we’re valuing a house for insurance purposes, we build in a buffer for estimated inflation over the coming 12 months, but the re-build value can still become outdated quite quickly.
Most homeowners don’t get valuations done regularly, which is concerning given how quickly build costs and inflation are both increasing at the moment.
We know it’s tempting to avoid having your home re-valued for insurance purposes, because it’s likely to result in a slight increase in your insurance premiums (plus there’s the cost of the valuation itself). But these costs are minor in comparison to the risk you face if your house is under-insured.
Selling your house
When you’re selling your house, it’s sensible to get a valuation done first to ensure you know what the property is worth. If you have an accurate understanding of your home’s value, you won’t unknowingly undersell it or go into the sales process with unrealistic expectations.
We often see house sales come through that appear undersold, often because homeowners are relying on their real estate agent’s advice about the value or have perhaps sold the property privately. You might think you’re saving yourself money by avoiding the cost of a valuation, but you could be missing out on a significant amount of money if you sell the property for less than it’s worth.
Valuers are completely impartial. The market value is the market value, regardless of the purpose of the valuation. We're not advocates for any particular party and aren’t personally set to gain or lose anything from the sale of your property, so you can trust that our valuation will be accurate.
The property market is currently slowing down, so some homeowners will find their house isn’t worth quite as much as they think. In the last three to four years, property prices have consistently been increasing, but prices are now levelling off and sometimes even decreasing. At times like this, when the market is veering off its usual course, it’s crucial to get a valuation done before getting too far into the sales process, because you may decide to wait once you know the current value of your property.
If you’re selling your house, we’d suggest getting a valuation done about six weeks before putting it on the market. Generally we say that house valuations are valid for 90 days, so we wouldn't recommend having it done more than 90 days before the sale – particularly if the property market is in a period of change.
After a death in the family
If a family member or close friend has died and you’ve inherited a share of their house, we’d suggest getting a house valuation done before making any decisions about the property.
For example, if you inherit a house along with other beneficiaries (e.g. you and your siblings have jointly inherited your parent’s house after their death), there are a couple of reasons why a valuation might be a good idea:
- If you decide to put the house on the market, it can be helpful to have a valuation done to avoid disagreements about an acceptable sale price
- If one beneficiary wants to buy the house from the other beneficiaries, a valuation will help you ensure each person’s share is being sold for the right amount
Need a house valuation?
If you need to have your house (or a house you’re looking at buying) valued, we’re here to help. We’ll provide a fast, reliable house valuation.
Our expert assessment will give you the knowledge you need to make important decisions about your property, so you can move forward with confidence.
This article was originally published by TelferYoung