How long does a property valuation remain valid?

Posted on June 27, 2023

Property valuations are undeniably necessary for establishing the market worth of your real estate assets. You may have received a valuation report at some point and are wondering if you’re still able to use it to inform your current financial decisions. Property valuers in Victoria can help you stay in touch with the current value of your real estate and ensure you protect your financial health.

Since valuations are based on market and economic data which change over time, valuations can lose credibility due to certain circumstances. The length of a valuation report's validity depends on the purpose of the valuation, the industry and market conditions.

A valuation carried out for particular purposes like mergers, acquisitions or financial reporting requires more accuracy. Therefore, they probably have firmer rules dictating the regularity of valuation updates and validity periods. The requirements change with industry standards and circumstances surrounding the valuation. However, valuations generally retain relevance for roughly six months.

Consider a valuation an informational snapshot at a certain point in time so, unfortunately, they become dated fast. Many influencing variables like material changes, or changes of note in the market and new financial information can impact the relevance of a valuation. Therefore, for the sake of accuracy, fairly regular updates are advised.

Why do valuations have an expiration date?

To further understand why valuations require regular updates we need to look at the variables that affect the information and market value reported on in a property/asset valuation. Residential and commercial property have differing valuation efficacy periods. Since commercial properties carry more liability than residential properties they require more close financial observation.

Therefore, commercial assets may need regular valuations to ensure precise financial reporting. Other reasons affecting valuation efficacy are discussed below in more detail:

Updated financial data: Asset stakeholders are required to supply financial statements like expenditure and cash flow statements. These reports inform stakeholders about the financial health of a company. Homeowners track financial statements for tax purposes and financial accountability. As new data regarding finances develop valuation outcomes may change.
Market fluctuations: Industry trends, economic circumstances and stock market sentiments constantly alter influencing the value of all assets and industries. Over time market trends change and new financial circumstances arise changing how assets are valued.
Changes in the business: Residential property can be renovated or degraded. Enterprises experience management changes, take investment risks etc. which all influence value. Therefore, updated valuations are necessary to account for new developments.
Regulatory and accounting changes: Businesses have to submit financial report and these reports need to align with new regulations. Compliance regulations are often amended which require valuations to similarly amend in compliance with new legal standards.

Expiration of residential versus commercial asset valuation

Regardless of the type of assets you hold, both residential and commercial asset stakeholders necessitate the need for updated property or asset valuation. Validity periods for real estate asset valuations vary between residential and commercial markets. However, residential valuation tends to have a short validity time frame.

Volatility and swift change in market conditions that influence supply and demand trends and interest rates affect the residential property market more so than commercial markets. For this reason, residential assets valuations are valid for shorter time frames. That can range from roughly six months to a year.

Commercial valuations are aimed at assessing value over an extended period. The purpose is to forecast how the market will behave so they tend to have less volatile market conditions. With more stable market trends, commercial or industrial assets don’t require valuations as regularly. They remain valid for longer. However, they are a necessity after a certain period and they require more scheduled updates.

It is worth mentioning that regardless of the industry, certain conditions may alter the relevance of a valuation. This only highlights the significance of consistent reassessments.

The risks of using an outdated property valuation

You may be considering using a valuation report uncertain of how credible it still is but there are marked drawbacks that can result from doing this. Since market conditions change and affect value the use of a potentially outdated report could misrepresent the true market value of your property or asset. This can cost you substantial financial loss and missed investment prospects.

You stand to suffer financial loss because an older valuation will not reflect any new renovation, upgrades or improvements. Changes in the area may have increased property value with increased access to certain amenities like public transport and shopping centres. Differing economic conditions that affect the supply or demand for properties in the current market would also affect value.

In addition, using an outdated report for a mortgage loan or insurance coverage is risky since it may not reflect your property’s true value. You may receive a smaller loan instead of a fair one. A better loan would provide more opportunities for sustainable financial security.

In terms of insurance, you might receive inadequate coverage. This could leave you vulnerable to any minor serious damage to your property asset. It also leaves you at a disadvantage in a housing transaction, it could lead to unfair pricing or under-pricing and also legal disputes.

You can mitigate these risks by ensuring you update your valuations as prescribed.

Conclusion

What has been made clear ensuring you maintain reliable and relevant property and asset valuations is undeniably crucial. Periodic reassessments of your property to reflect the latest information relating to market value may seem slightly demanding but financial stability usually is. There’s more to gain from the extra effort.

Additionally, when one considers the alternatives to not making sure you stay informed about your asset's value, it becomes clear it’s the only prudent measure to take. A lot more confusion and financial stress lie on the side of neglecting to protect your assets. Your financial health and security depend on knowing the worth of your real estate assets.