Valuation is defined as the skill and knowledge of estimating the fair price at which a property or an asset would exchange in an open market or rather, the process of making an estimate of worth of a property or real property or other assets for a particular purpose such as letting, purchase, sale audit rating, compulsory purchase or taxation.
In addition, valuation is significant and is based on key foundations and practices. For this matter, a number of global organizations have been formed in order to regulate and provide governance to valuers. Some of the bodies formed include; International federation of surveyor’s. This is a premier international organization representing the interests of surveyors worldwide. This foundation covers the whole range of professional fields within the global surveying. It also provides an international forum for discussion and development aiming to promote professional practice and standards.
In Kenya, we have Valuers Registration Board. This is the Board that enforces the highest standards in Property Valuation. The board has streamlined regulations and set out rules and ethics that promote trust and professionalism in Property Valuation.
It is important to note that, the person you assign to carry out valuation services must have undergone compulsory and dynamic tests of education, training, and competence. He/she must exhibit and maintain a code of high ethical conduct and professional practice.
Why carryout a Valuation
Unlike many other investments that are quickly used, the benefits of real property are generally realized over a long period of time. Therefore, an estimate of a property’s value assists a property owner to take into consideration economic and social trends, as well as governmental controls or regulations and environmental conditions that may influence their property’s value.
The importance of valuation in property decision making
It is critical that a property valuation forms part of your usual decision making process when considering a real estate transaction. This is simply because, valuation is an exercise, if undertaken will yield unbiased, credible assessments of the value of a property.
Besides, a Valuation plays a key role in the following roles to both the property owners and buyers;
A property valuation allows a large degree of comfort due to its legal nature. In this case, both property buyers and sellers definitely need a Valuer to guide them in pricing in the transaction process.
Determining the difference between price and value, a competent and qualified Valuer will accurately assess your property and help you understand what your property is worth in terms of current market value for a whole host of reasons such as; Bank/Mortgage/Loan, insurance purposes, property tax, financial planning, buying, disposing/selling, audit/balance sheet, owner-occupier house allowance, rental negotiations, merger and acquisitions, etc. Many properties sum insured are either based on their perceived ‘market’ value or purchase price. That however, can be a costly mistake and often a professional surveyors’ revaluation is advisable because an open market value does not reflect the cost of rebuilding and is therefore not adequate to determine a valuation for insurance.
Property valuation guides your investment, buying and selling decisions. A property investment is one of the biggest decisions you will make and therefore, they should be made with objective. An experienced Valuer will assist you make objective decisions in regard to selling and buying
Accurate property assessment, an Estate Agent acts on behalf of the vendor; hence, the aim of an estate agent is always to get the maximum price for the vendor. However, the agent may not be accurate in the pricing and may easily over or under price your property. In this case you need to choose a Certified Practicing Valuer for accurate property assessment.
An independent valuation provides clarity and prevents unrealistic expectations. Personal attachment can obscure judgment. Everyone forms emotional attachments to the homes they live in or a property they wish to buy, this can affect how much they believe they are worth. To avoid this, you need valuation. If you are selling, a valuation can provide a good idea as to what you can realistically expect it to sell for. According to Jean Folger, a world known Valuer, the present worth of future benefits arising from the ownership of real property, unlike many consumer goods that are quickly used, are generally realized over a long period of time. This makes valuation indispensible.
A valuation is a legally binding document, so it can be a valuable document when negotiating with buyers/vendors and if any disputes arise.
Property valuation will include property information, rates, size of the land and buildings, physical details on the construction and conditions of the dwelling, details of any immediate issues that may need addressing as well as information on imperative sales in the area. This keeps you on track when making selling decisions.
A valuation is tax-deductible if the property is held for investment purposes. So you get an objective assessment of the value of your property and can claim the cost as a deduction from your annual tax assessment. When assessing your property, it’s current market value that you should consider. By undervaluing your property you could find yourself paying a fine in the future, consequently, by overvaluing it you may end up paying additional tax every year. Thus, a qualified Valuer will prevent this from happening by proving correct figures.
Valuation is of significance to Mortgages. Mortgages require a property evaluation as well. This is a measure taken by lenders to protect their own risk as well as to ensure they are not giving a home loan greater than the value of the property or not lending against a non-marketable one.
The valuation also tells the lender if there are any features or significant defects that could affect the property’s value. After all, the lender is lending money against this property. Therefore As the property is security against the home loan given; the property valuation process becomes a pivotal part of a home loan approval.
Valuation prevents any financing shocks. This is particularly an issue if you are buying an apartment off the plan or a house-and-land package, where the price you pay may be affected by rebates, incentives, developer profits, marketing costs and a change in value over time. A lower valuation may require a buyer to dig deeper into the pocket or be forced to take out lenders mortgage insurance.
The process of making a valuation can be considered both art and science, this makes valuation resources extremely useful. For sellers the correct pricing is vital for a successful sale. If a property is undervalued a fast sale maybe assured but the money lost will be a painful infliction. The opposite is true; if a valuation is too high a property may sit on the market for a considerable amount of time, increasing the chance of sellers becoming frustrated and accepting too low a price
To this end, both property sellers and buyers require valuation services to be certain of the value and worth of the property they are about to buy or sell.
One more thing, agents will value your property in line with current market trends but their opinion is just that, opinion. Thus, always seek the services of a registered and practicing Valuer because they are the only ones who can give a true valuation of a property that is accountable.