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What is Property Valuation and Why is It Important for Real Estate Transactions

A property valuation is a process that establishes the market value of a property. Market value is usually defined as the transacted price between a willing buyer and a willing seller for a property.

For many of us, our property is the biggest investment of our lifetime. In the Singapore real estate market, HDB flats transact in the hundreds thousands of dollars and private condominiums cost upwards of a million dollars. Therefore property valuation is an integral part of a property transaction, from a seller who needs a guide on how to price his property to a buyer who wants to buy at fair market value, or when one needs a mortgage loan or pay stamp duty.

Generally, there are 2 approaches to property valuation; indicative valuation and onsite valuation. Indicative valuation is an estimation of the value of your property. It is usually done by computer algorithms, using past transactions within the same vicinity of the property. Indicative valuation can only give you an initial gauge, as there are other factors that could affect the actual market value. The computer algorithms cannot know if the property was recently renovated and at what cost. It cannot know if the house is well maintained or if there are cracks on the wall or pipe leakages. It will not know if any A&A (additions & alterations) were done and at what extend. These factors do have an impact on the actual fair market value of a property.

On the other hand, on-site valuations are done by qualified and licensed valuers or surveyors. These professionals must hold a degree in Real Estate and have at least 2 years of relevant practical experience. They must also be accredited to the Singapore Institute of Surveyors and Valuers (SISV). The valuer will then be on-site to assess the property based factors like location, URA zone, land area and built-up size, age, condition of the property, and prevailing market conditions etc. The professional valuer will then be able to give a more accurate fair market value as compare to indicative valuation.

Property valuations are needed in the following situations :

  • Buying or selling of a property: Valuation of property is important when buying or selling of property to determine fair market value for both buyer and seller. It can also be used to determine the rental price if the owner wants to rent out his property.

  • Mortgage loans: Valuation will also determine the amount of financing you can get. The maximum bank loan is 75% of purchase price or valuation, whichever is LOWER.

  • Stamp Duty: Unlike bank loans, stamp duty is determined by the HIGHER of the purchase price or valuation.

  • Compulsory Acquisition: In case an individual or an organization declares itself bankrupt and a compulsory acquisition or auctioning off the property is done, in such case the valuation of a property is important.

When applying for a bank loan, most banks will give you an indicative valuation report. But different banks use different processes and sometimes, the figures quoted can differ quite substantially. So by having a certified valuer appraise your property, both the sellers and the buyers will be in better positions when it comes to the negotiations.

Valuation of a property has a short lifespan. So if the previous valuation of your property was done sometime back, it will not be accurate due to changes in the property climate, economic outlook, supply & demand and other factors. It is best to get an up-to-date valuation if you are thinking of transacting a property, refinance or renting.

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