In 2021 we all need to prepare ourselves to see the gap widen between valuations and our own ideas on what we think a property is worth – and expect to do so for at least six to twelve months.
Now, valuations can be a challenge but they aren’t the final word on what happens with real estate. As a property investor, it’s your job to determine if and how that property can grow in value.
What you don’t want to do is start missing out on great real estate because of a low valuation. You need to be in the market to benefit from it, and if paying a little more at sale means you’re on your way to building a rich property portfolio, it’s going to be worth the money long term.
WHAT IS A VALUATION?
Simply put, a real estate valuation is an unbiased report that details what a property would be worth in the market. A valuer is usually outsourced by lenders to independent companies who are able to remain impartial.
The process has benefits to both the buyer and seller. For the buyer, it reduces their risk for paying too much for the property, while the seller is able to see where the weaknesses are and find ways to improve on them if possible i.e. conducting renovations.
The most important thing to remember with a valuation is that it is tied to lending only. As property investors, we are likely to need them done to obtain finance. The final number given by the valuer advises the bank or lender how much they could allow you to borrow.
Of course, this doesn’t mean that the final sale price will align. The market is influenced by so many other factors and there is no way to know how much a vendor or seller could get for the property. However, they are the most accurate way to determine what a piece of real estate is worth.
THREE PEOPLE, THREE DIFFERENT BEHAVIOURS
There are essentially three types of people that help inform the valuation process and each one has different behaviours, risk profiles and activities. They are – valuers, real estate agents and property investors.
One looks into the past, one into the present, and the other into the future.
PERSON OF THE PAST
A valuer cares only for history. Their role is to look back and determine what was happening in previous markets. Think of them as living three to six months in the past at all times.
As mentioned above, valuers work for the lender and assess real estate worth based on what will best protect the bank and what evidence of sales there have been in the market.
By nature, they are very conservative when it comes to risk.
PERSON OF THE PRESENT
Real estate agents are living for the now – or at least for the next 30-60 days.
They understand the market in its current state and can feel where the demand is and where it isn’t. With their motivation directly linked to money, they are more confident in their approach to get above the valuation price for their clients.
PERSON OF THE FUTURE
Property investors are the ones looking towards the future. We are the ones who have to decide how much potential this piece of real estate has and what it might be worth in the future for our portfolio.
Low valuations are not a death sentence for investors. Your decision to move on a property is entirely dependent on what your plan is and how much value you can see in it.
Even if it means throwing in some extra cash to match a low valuation, it is better to be in the market and making that money back over time, rather than sitting on some potentially great real estate.
As long as you’ve done your due diligence, you have the equity and cash flow to purchase, and the rent covers the cost, don’t let some traditionally conservative valuer who works for the lender scare you off.
MANAGE YOURSELF THROUGH VALUATIONS IN 2021
Like I said before, the gap in valuations in 2021 is going to be evident and challenging for many. Be rational and strategic – the aim has always been to buy well and hold onto that property forever.
Ensure you get the support and coaching you need to make sound investment decisions this year. If you don’t know where to go, come along to one of our free property investing nights. You’ll meet a great team of like-minded people who will go on this journey with you.
Spots are limited – book now.
By Jason Whitton
Group CEO Positive Real Estate