Appraisals vs Valuations – what’s the difference?

Real estate is a booming industry and more and more people enter it every day; some even do it on the side of their normal profession. I’m pretty sure that if you think about it, you all know a real estate agent. Real estate agents play a vital role in the property market. Some people may have negative opinions about agents; however, after being a sales agent for several years I will always have a profound respect for those who have mastered their craft. In saying that, I am also quite quick to point out those who haven’t the slightest clue about how to do their job!

It is important to understand the difference between the view of a real estate agent and that of a surveyor or a valuer. This is essentially the difference between an appraisal and a valuation. One key difference is that a sales agent’s appraisal is taken from sales evidence in the area, their knowledge of the sales markets timeline over the last few months, buyers’ behaviour towards certain areas, and any neighbouring developments which are currently under construction. They would be able to give an idea on whether these factors would increase/decrease demand for the area in future.

On the other hand, a valuer looks statistically at sales evidence. This tends to be the main foundation for a valuation. They also look into the materials used to construct the property and at neighbouring environmental issues such as close proximity to power lines. A valuer cannot conclusively determine the attitudes of buyers in the market, as a valuer does not deal with buyers on a daily basis. Also, valuers are restricted legally to only using information that is lodged on Landgate and other registrar portals. Such information can often be a few weeks behind the current market, whereas sales agents normally track their own records day to day. It is also very unlikely to have a valuer covering just one area. They tend to cross into other suburbs, whereas sales agents tend to have more localised expertise.

A sales agent is, although some may disagree, an expert in their field. They are able to analyse the demands and trends in local areas and can often indicate the different factors appealing to buyers street to street. The downfall with sales agents is that, when it comes to valuations, their word is not their bond, meaning they cannot be held to this. Compare this to a valuation, which is a legal document of which the legal responsibility falls with the valuer. In this regard the most common form of having a calculation is an owner involving the bank either for taxation purposes or for refinancing.

In summary, an appraisal gives a rough idea of what the agent believes they can sell the property for. A valuation is the current true market value based on comparable sales evidence. I have highlighted the word true to keep any real estate agent readers happy!

Having been both a sales agent and now working in the valuations industry, I would like to think I have a higher-than-average understanding on how both professions work. At the end of the day I would recommend speaking to an agent if you are considering putting your property on the market, but remember to always do your own research to determine their expertise, performance and knowledge of your area.

Michael Mackinnon