First impressions count, so when a valuer is approaching your property from the road, if your property presents well, is neat and tidy, mown lawns, etc, then the first impression is going to be positive.
This instantly means the valuer isn’t going to walk into the property expecting to see it poorly maintained; instead they will walk in with a positive mindset.
The external appearance of a house definitely plays a part in this impression. If there is paint peeling, as well as rusted balustrades/handrails to the patio, overgrown fences, etc… this will not only impact on the valuer’s impression but will also increase the percentage of depreciation the valuer will assign to the improvements of the property.
People often say to me that a 4-bedroom home is going to always achieve a higher valuation than a 3-bedroom home. This may not be the case. If you were to have a three-bedroom home in which all bedrooms were 9sqm or above, or, you had a 4 bedroom home where all bedrooms were 2.5sqm, that valuations would likely be similar for the two properties, or even slightly higher for the three-bedroom property than the property with four bedrooms.
Adding a covered outdoor area to a house will certainly add value. Australia’s climate lends itself to the outdoors and Australians take pride in entertaining on the deck or the patio, so this will add value to your property. But it is important to ensure the outdoor area is accessible from the living space. If you have to walk through a laundry or around the back of the house to get access to the area, this will not feel like an extension of your living space and could actually deter future purchasers.
Bathrooms are extremely important for the ability to increase rental returns, but families are looking for properties with 2 bathrooms rather than just 1. If you can buy a property and build a second bathroom, this will improve the value of the property significantly. In some areas of Queensland, we have seen a second bathroom add as much as $50,000 difference to the value of a home.
The reason a vast number of people are building granny flats on a properties are to improve the rental return. This is a great strategy if you are looking to have an investment property that is positively geared; however, generally speaking, the cost of the granny flat will outweigh the value it adds to a property.
There are different models; some people choose to crane in a shipping container that has been converted to a granny flat; some choose a demountable-style building and others build “from the ground up” a physical brick or lightweight construction building as a second dwelling. The bank actually instructs valuers to exclude demountable dwellings and granny flats from the overall market value – we have to make a comment as to what accommodation is available on site, but it will be excluded from the market value. A dwelling built of brick – or constructed “from the group up” – will be included in the valuation. The cost of a granny flat will range from around $80,000 – $150,000 depending on the quality of the fit-out.
From a valuation perspective, the cost of these is significantly higher than the value it adds to the property. This is in part because many people who build are not concerned about the value of the property; instead they are focusing on the yield and are prepared to spend the money to gain this.
While a valuer considers the rental return of a property as part of their assessment, the value is determined by calculations of construction costs on a rate per square metre, and this, combined with the land value assessed, provides the market value. This is then compared to sales evidence as a check method. The valuer cannot put a value on the property based purely on the rental return and therefore, despite the increased yield, the value may not increase significantly.
The trouble with a granny flat is that for a 60sqm building, the cost is between $1,300 and $2,500 per square metre, which is a significantly higher rate per square metre than the rate of a brand new residential building.
Poorly constructed granny flats are becoming more and more common, especially in the western suburbs of Sydney, as companies try to reduce the build costs as much as possible to improve the rental yield for their investor clients. This is where our valuers are seeing the vast majority of granny flat constructions. This reduction in quality is making it even more difficult for valuers to support a construction contract or give the property an increase in value that equates to the cost.
Our advice – if you’re going to build a granny flat and are aiming to get the highest increase in the capital value of your property from a valuation perspective, is to build quality, and do it in areas where there is a limited supply of granny flats or ability to build granny flats.
This will ensure that your property is more unique and may attract a premium due to its unique nature. It will also improve the future marketability as it will appeal to both owner-occupiers and investors, and with quality fixtures and finishes it is going to add more value.