Property valuations are an essential part of real estate transactions. They affect how much a bank will lend a buyer, and similarly, how much a seller can expect to get for their home. So no matter where you are on the property ladder, it is important to understand what the property valuation process entails.
For some helpful advice and insights, I sat down with Chartered Surveyor Michael McGrath, a partner at JEC Property Consultants.
What is a property valuation?
A property valuation is an expert assessment of your current property value.
As a real estate agent, I regularly provide comparative market analysis reports for property owners. These reports show my price opinion to give helpful guidance to those considering selling their home.
A formal property valuation is completed by a Chartered Surveyor. This is a systemised process that carefully considers many, and I mean many different factors that affect the value of your home. The list is long but includes things such as the home's age, condition, and square footage, as well as location and other comparable sold properties. After an inspection of the property as well as a thorough sales comparison, the Chartered Surveyor compiles a report of findings.
In Cayman, 80% of Chartered Surveyor valuations are completed because of mortgage requirements. Meaning that the majority of the time, the request for valuation comes from the buyer's financial institution.
What is the purpose of a property valuation?
Most financial institutions will require a valuation when a loan is necessary for the home purchase. The property valuation provides the bank with assurance that the value of the property is not less than what they are lending. Chattels are typically not included in a professional valuation. (Top Tip: Some banks may lend against chattels, so it is an important question to ask when doing your homework on mortgages.)
Outside of being required by the bank, a valuation provides buyers with an assurance that what they are paying is deemed fair value in the current market. A valuation can be an extremely useful tool to avoid real estate decision paralysis, the over analysing and second-guessing of your decision to buy.
And if you are selling your home, a valuation will provide you with a guide as to how much your home could sell for.
"In the current rising market, we are finding many people who attempt selling their property privately are undervaluing their asset. There have been many recent examples of owners listing their properties privately and being inundated with enquiries, only to realise that the list price is much lower than market value. It is difficult to determine the value in this market, so I recommend working with a qualified real estate agent or obtaining an expert valuation report." - Michael McGrath, JEC
There are many additional reasons why someone would seek a valuation, including refinancing a mortgage, estate planning, tax purposes, or dispute resolution.
What is the cost of a property valuation?
In Cayman, a standard land valuation costs approximately CI $475 to CI $500. A valuation for a residential property starts at CI $675 and increases depending on the size and scale of the property. More extensive properties with larger square footage take more of the Valuer's time to inspect, measure, and research. Similarly unique properties, with complex features, require a more detailed approach, especially when considering market comparables.
The purchaser is responsible for the cost of the valuation if it is required by their bank or stipulated in the offer to purchase. Similarly, if a seller requests the valuation, they pay the valuation fees.
When does the property valuation happen?
The property valuation process starts with a contract, the offer to purchase. As typically, one of the conditions of a property sale will include a satisfactory property valuation. Once the seller has accepted the offer to purchase, and the bank has approved the buyer, the property valuation is ordered.
The bank appoints a Surveyor to visit the property and prepare their report of findings. A copy of the report is then issued to the bank and the purchaser can request a copy from the bank. (Top Tip: Some banks in Cayman will allow you to choose the Valuer you wish to work with, while other banks will select the Surveyor based on a rota of designated Surveyors. It is another important question to ask when doing your homework on mortgages.)
Current practices place Valuers as the last link in the real estate chain. Engaged after the offer to purchase, and primarily by the bank. This is a missed opportunity as Surveyors bring a wealth of knowledge to any property transaction. Luckily in a real estate market like Cayman's, where sales are happening in record time for record prices, we are starting to see this trend change.
"We have seen an increase in people coming directly to Surveyors as a first step because individuals are confused what the value of their property is. It's often challenging to pinpoint a value in a rising market because it is changing every week." – Michael McGrath, JEC
What does a Surveyor look at during a site visit?
A Valuer visits a property to determine a number of things, including;
- Size – square footage measurements of the property
- Number of bedrooms/bathrooms
- Size of land parcel
- Condition of the property
- Additional specifications – upgrades or renovations (solar, new windows, flooring, insulation)
- Layout, design, key features
- Site work (pool, pavilion, docking, etc.)
Valuers are trying to establish how your property compares to past comparable sales. For example, if you have completed extensive renovation work on your home, this will be factored into the value when compared to the other equivalent sales.
Tips to prepare for a Surveyor visit.
A lot of people get concerned about how tidy their property is before a Surveyor comes. And while Valuers see past clutter, it is helpful to know what you can do to prepare for the visit.
Michael McGrath from JEC Consultants shares a few helpful suggestions:
- Access: One of the first things a Valuer will do is measure your property. Access to the entire property should be made as easy as possible to facilitate accurate measurements. Ensuring accurate square footage is critical to the pricing of the home.
- Minor Repairs: Address any small repairs or maintenance items, including broken windows or doors, damage to sheetrock lined walls and ceilings etc.
- Details: Provide details on updates or renovations. When a Valuer comes to your property, they are looking for information to support the home's value. Therefore, any upgrades you completed are important to factor in. Be sure to mention hurricane grade windows and doors, a new roof, spray foam insulation, kitchen or bathroom remodelling.
- Sales: Private sales can take at least six weeks to reflect in Cayman's Lands and Survey database. These sales also do not appear in CIREBA, the Cayman MLS system. If you are aware of any recent private sales, notify your Valuer so they can factor this information into their report.
The role of a real estate agent.
As your representative, your real estate agent should be a helpful resource during the property valuation process. We meet the Valuer at the home to provide information on the number of viewings and offers, comparable sales, our market insights and list price rationale.
Michael can attest to this, but I typically reach out to Surveyors for advice before establishing the list price of a home. If needed, I will even recommend the seller obtains a formal valuation to ensure accurate pricing, especially if they are looking to sell within a specific timeframe. Similarly, if I am working with an overseas buyer for an additional layer of comfort, I will recommend, refer, and work with a Surveyor to obtain a valuation for them.
Recommending property valuations and seeking the advice of Surveyors is an extra step, but one I am happy to undertake for my clients. Property purchases are one of the most significant financial transactions we make in our lives, so having an independent and objective opinion is invaluable. As agents, we need to adopt a collaborative approach to protect the interest of buyers and sellers in the Cayman real estate market,
A big thanks to Michael McGrath from JEC Property Consultants for sharing his knowledge of the Cayman property valuation process. As a Chartered Surveyor and Registered Valuer, Michael has over twenty years of experience providing valuation and property development advice. And unfortunately for him, the past three have included me picking his brain!
Do you have home valuation questions?
Whether you're a first-time buyer or seasoned property vet, it is important to feel in control of your property journey. Ask questions. Be informed.
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