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Compensation Property Valuations: The Before and After Method

By John Carter

Home Valuation Perth

When valuing a property there are multiple methods used. One of the most popular and widely used methods is the before and after method for compensation purposes.

A compensation valuation takes into account all aspects, including the economic changes such as inflation rates or deflation rates.

In this blog we are breaking down our valuation services to give you a better understanding of property valuations and what’s entailed in a compensation valuation.

What is a Property Valuation?

A property valuation is an investigation to conduct a report that will specify the value for an asset or item. It can also be referred to as a process in which the valuer will determine the market value of your property. A useful insight for both buyers and sellers on how to estimate the approximate worth of a property.

The market value is defined by the amount the property would be if it had been sold on the market. The valuation report factors in:

  • the size of your property
  • the location
  • the quality of improvements
  • zoning
  • recent sales in the area
  • pest and building inspections.

Understanding Compensation Property Valuations

The compensation valuations that we offer are required when an owner or entity is owed compensation or encroachment onto their property, when a portion or whole property is to be acquired for any infrastructure or development projects.

The valuation will determine an adequate amount that will be compensated based on the current market value of the property, otherwise known as partial acquisition.

This is where the before and after method comes in when a partial property valuation is assessed. What’s included:

  • The value of the total property, as unaffected by the project proposal, known as the ‘before valuation’ is determined
  • The value of the remaining property after the acquisition is determined. This is known as the ‘after value’
  • The difference between the ‘before’ and ‘after’ valuations helps form the compensation payable.

We can break it down in means like:

(Before value less After value) plus Disturbance = Sum of Compensation

This type of method can be complicated without an understanding of the principles that make up this type of valuation.

The valuation report can still be conducted with any situation that may arise, such as:

  • Expansion of roads and infrastructure.
  • If a builder has completed your property to below the agreed specs.
  • If a neighbour is encroaching on your boundary and is using your land; and
  • The effect of damages to your property and the devaluation they have caused.

With the before and after method, our approach is a more complete way to assess the value, as this includes the current market conditions as these may change over time while other methods don’t factor this in.

This method is best used when a valuer has two comparable properties, one that’s been purchased and the other being an area of land.

What affects your compensation property valuation?

Any given property valuation has many factors involved.

This may not mean your home isn’t worth something just because you live somewhere undesirable, there could be other factors that have influence the value determination such as

  • Size
  • Age

This will also affect the interest of people willing to pay rent or buy the property. When investing conditions change this can affect everything else as well as the price. Having an understanding of these principles can help potential investors make better informed decisions about their money spent on various types of assets like

  • Real estate
  • Stocks
  • Bonds

There is a lot that can go into a valuation, before looking into what affects a property it’s important to have a clear understanding of how the value is determined.

It’s important for our valuers to know the true value of your property prior to any type of events that may occur because it helps us estimate what kind of sum we should get as compensation if damages were to occur.

With numerous experts in the field of all property related purposes enquire with us today so we can get you started on the right track.