Most people hear the words “valuation report” for the first time when somebody else asks for one. A bank wants it before releasing a loan. A buyer wants it before paying. A partner or a court wants it before a property gets divided.
And then comes the part nobody explains, what exactly is being asked for, who is allowed to prepare it, and what the process looks like. This guide answers those three things.
Lets say this in short, a property valuation is a written opinion, from a qualified valuer, of what a property is worth on a given date. Banks, buyers, sellers, companies and courts all rely on it. This guide explains how it works and how to pick a property valuation company, in plain words.
What is property valuation?
A valuer visits the property, investigates the paper, considers prices of similar properties and prepares a report which sets a value and he reasons as to how.
The estimate of an agent is another matter. Typically an agent will be able to predict the worth of a home, and in many cases may have an agreement based on that prediction. A valuer has no stake in the sale and has to be able to defend the figure.
The government rates are something else as well. DC and FBR rates are decided on the Taxation and Registration basis, and are frequently much lower than what the properties trade for.
A valuation looks at the real market.
Value and price are they the same?
No. Price is what a buyer actually pays. Value is what the property is worth based on evidence, such as what similar properties nearby have sold for. The two are often close, but not always.
We’ll understand this through an example, suppose a house in a good area is worth about Rs. 45 million going by recent sales around it. The owner needs cash quickly and sells it for Rs. 38 million. The price is Rs. 38 million, but the value is still around Rs. 45 million.
That gap is why valuations exist. Whether you’re buying land, investing, or taking a loan, you want to know if the deal is fair, valuation gives you a figure based on evidence, not what a seller is asking.
When people need one
People need property valuations for various reasons, from securing bank loans to buying or selling property. A valuation is one of the most effective ways to determine a proper and accurate property value.
Bank Loan: Bank requires the property’s valuation to be done and approved before it accepts the property as collateral for a loan. This is the most common reason for property valuation in bank financing.
Buying or Selling: A buyer and seller value for the property should be equal, based on the objective formal assessment and not just a reflection of a someone’s opinion.
Insurance: Cover that is too low can leave you short after a loss, and cover that is too high means paying extra for nothing.
Disputes and Shares: Inheritance cases, partnership exits, and court disputes often require an independent and neutral property valuation.
Funds and REITs: Appropriate value is determined by the valuation of properties prior to purchase or transferring them into a fund.
Government & Companies: Uses it for taxation, compensation while companies need it for accounting and financial reporting.
Residential, commercial or industrial what changes
The concept remains the same, but the valuer focuses on various aspects according to the nature of the property.
Residential valuation includes the valuation of houses, apartments and plots. The main criteria are location, size, age, condition, and recent sales around the area.
The values of commercial properties are included for shops, offices, plazas and warehouses. Incomes are far more important here.
The steady rent on a busy street is of worth to an investor more than an empty space on the same street so rent, lease terms, tenant record all have a part to play.
Industrial property valuation includes factories, mills and the land. The valuer looks at the land, the buildings, road access and utilities. Machinery is usually valued separately.
Vacant land gets its own treatment. What counts is where it is, what it can legally be used for, and what nearby plots have sold for.
How a valuer arrives at a number
There are three common ways to work out value. Valuers often use more than one and compare the results.
Market comparison. Compare similar properties that have sold recently or those listed in the area close by and make adjustments accordingly to differences. This is best suited to houses and lots.
Income method. Look at the rent the property earns, or could earn, and work out what an investor would pay for it. This is ideal for shops, offices and rented buildings.
Cost method. Work out what it would cost to rebuild, take off something for age and wear, then add the value of the land. This helps with buildings that have few comparable sales, such as factories.
Putting it together: Say a shop is rented out. The valuer checks what similar shops nearby sold for, how much rent this shop earns, and what condition the building is in. If all three point to about the same value, the valuer can be confident in the figure. If they don’t, the valuer explains why and which one they relied on more.
Market value and forced sale value
A bank valuation report often shows two figures.
The market value of the property would be the amount that the property would normally sell for with a willing buyer, willing seller and enough time to meet.
Forced sale value is lower. It provides an approximation of the value of the property if it is being sold rapidly, such as during a bank loan recovery.
Banks want both, since they should understand the value they are getting for their security in the worst-case scenario. If you’re the borrower, expect the second number to be lower. The two figures provide answers to different questions, and a difference between them is normal.
From request to report
The property valuation process is simpler than most people expect.
- You explain to the valuer where the property is located, the type of property and the reason for the valuation.
- You share the property papers.
- A valuer visits. They go around the property, measure and inspect its condition and surroundings like roads, neighbouring buildings, utilities and anything that can create an impact on a property’s value.
- They research comparable properties and, for rented property, local rents.
- They write the property valuation report.
- The report is checked and issued, usually signed by the valuer.
A good report describes the property, lists the papers the valuer saw, explains the method, and states any assumptions.
What to have ready
Getting your papers in order is the easiest way to avoid delays. A valuer will typically ask for:
- Ownership papers, such as the registry or sale deed, plus the ownership record, allotment letter or lease
- A site plan or approved map, if there is one
- Recent utility bills and tax receipts
- Rent agreements, for rented property
- Someone who can give access on the day and answer questions
Papers differ by city and by type of property, so the valuer may ask for more.
Why “PBA approved” matters
The Pakistan Banks’ Association (PBA) keeps lists of valuers that banks accept.
Not every valuer on the list can value every property. Some are approved only up to a set value. Others are approved for “any amount”, which means there is no upper limit on the property they can value for a bank.
It’s important to note that if a bank is going to loan against your property, they will usually require the report from a valuer that their list. If a report is not provided from someone on it, it is refused and you pay for another one. So ask any valuer about their PBA approval, and check with your bank which valuers it accepts.
How to choose a property valuation company
Before choosing a property valuation company, these questions are worth asking:
- Are you PBA approved, and in which category or for what amount?
- Who will actually value my property, and what are their qualifications and registrations?
- Have you valued this type of property before, such as a factory or a plaza?
- What will the report include?
- Do you work in my city, and with my bank?
Be careful with anyone who promises a figure before seeing the property, or can’t tell you who signs the report. A valuation has to be independent. A company that only tells you what you want to hear is not giving you a valuation.
Common FAQs
Can one report be used with any bank?
Do I need to be there when the valuer visits?
Will the valuation match what I paid, or what an agent told me?
Can I get a valuation before I buy?
What if I disagree with the figure?
Ready to get a property valued?
If you aren’t sure which type of valuation you need, or what your bank expects, talk to Tristar International before you book anything. Tell us about the property and what the report is for, and we will tell you what’s needed. You can read more about our property valuation services or get in touch through the contact page.
