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Who Determines Fair Market Value?

By John Carter

Who Determines Fair Market Value?

For most people involved in the management, ownership, buying, and/or selling of property, the importance of knowing market value is great. Not just anyone can give provide you with the market value of a property, and you’ll need to seek the opinion of an expert.

Hiring a valuation service in Perth is the most reliable method of finding this information. This is a service performed by a qualified and experienced expert who applies a combination of methodologies to calculate the existing market value of a property.

A valuation report will serve as conclusive proof of the market value of a property. As such, they are extremely useful in all sorts of circumstances. For accurate and detailed valuation reports, a property valuation from a qualified expert is the only definitive way forward.

What is fair market value?

The fair market value of a property is the determined price that it would sell for in an open market according to the existing conditions. It is determined via objectively available evidence regarding the market and the property.

The goal is to calculate the price at which an orderly transaction would take place between market participants in the current conditions.

The fair market value of a property is not necessarily the final selling price of a property, but merely a starting point for negotiations. Other factors such as the number of bidders, sentimental value and/or the pace at which you need to move can all impact the final selling price.

Who is qualified to prepare valuation reports?

In Perth, only a Certified Practising Valuer (CPV) who has been registered with the Australian Property Institute (API) can prepare official property valuation reports.

These are professionals that have undergone extensive valuation training. Each one is well-versed in the regulatory and legislative standards that must be met for the reports to be seen as valid.

As trusted members of the API, they must also meet International Valuation Standards (IVS). These standards are in place to ensure that strong quality standards exist across the globe for property specialists.

CPVs also follow fundamental principles of transparency, honesty and integrity. As trusted and registered professionals, they prepare independent and evidence-based valuation reports.

The reports serve as official proof of market value and can be used in several legal, private and business circumstances.

How do valuers determine fair market value?

Valuers have a thorough understanding of the housing market and are supremely well-versed in applying a combination of trusted valuation methodologies.

The process that valuers follow will depend on the type of property and the purpose of the report. A valuation of a commercial property will involve a much different process than a valuation of a residential property.

The three most common approaches that valuers use are the direct comparison approach, the income capitalisation method, and the summation approach.

The direct comparison approach

The preferred choice for residential property valuations. CPVs review the sales of comparable properties within the area to determine what the average selling price is in the existing market.

The valuer will then make the necessary adjustments according to any key differences between the properties. A multitude of internal and external factors are considered to guarantee a figure that accurately represents the property.

The income capitalisation approach

If the subject property’s purpose is to produce an income then valuers will apply the income capitalisation method to determine the market value. As such, this approach is almost always used to assess commercial properties.

First, the net operating income (NOI) is determined. This is the gross effective income minus the operational expenses. The NOI is then divided by the capitalisation rate (cap rate) to reach the fair market value.

The summation approach

Often used as a “check” approach when reviewing final figures, the summation method looks at each separate component of the property.

Valuers will add up the value of each separate part to find the market value of the property as a whole.

What is the fair market value of a house based on?

The value of a home is based on several different important key factors. A few of the most impactful considerations are:


A key part of determining value. A property in a desirable location is generally worth far more than one in a less-than-ideal area.

Factors such as proximity to nearby amenities like public transport, schools, and hospitals as well as the employment and crime rate of the area will play into the appeal of the location.


A larger property will often be worth more than a more compact one. A house with more than one or two bedrooms is attractive to families and newly married couples. This, naturally, improves the value of the home.


The amount of usable space in a home is key to value. Specifically, the more floor space and storage space available, the more valuable the residential property.

A well-designed house that maximises the space will be attractive to buyers. As storage space in itself is valuable, garages and sheds can be a great way to increase value.

Street appeal

The front of your home serves as an advert for potential investors. This makes the street appeal a key factor when it comes to value.

A neat-looking lawn, well-maintained driveway, freshly painted home, and welcoming entrance can all add value to a residential property.

Building age and condition

Of course, the age and condition of the building itself will have a hugely significant impact on the value of the property.

If there are clear signs of deterioration, the worth of the property will be negatively affected. The importance of good maintenance should therefore never be underestimated.

Market conditions

As the housing market is subject to constant change, CPVs have to stay constantly aware of the existing conditions.

By paying close attention to the market and considering comparable sales, valuers can prepare accurate and precise valuation reports.


A property valuation is the most reliable way to find the market value of a property. Certified Practising Valuers who are registered with the Australian Property Institute are qualified to determine a property’s market value.

The fair market value of a property is essentially a determination of how much the property would sell for in an open market. This is not always the final selling price of a property, as other factors come into play.

CPVs use a combination of reliable methodologies when preparing valuation reports. The purpose of the report and the type of property being reviewed will guide the valuer on which method is the most appropriate.

For house valuations, CPVs will consider the location, size, space, street appeal, building age and condition, and market conditions.

For more information on who determines fair market value, don’t hesitate to give us a call. As leaders of the industry, we would be happy to help.