There is no doubting the confusion surrounding the differences between a council rates notice valuation and an independent property valuation. Some property owners swear by their rates notice valuation, even though they may not realise they are conducted every two years. Whereas, some are property savvy and understand the property market is prone to fluctuation.

To paint a clearer picture on how local councils determine the value of a property, councils peruse three tiers of employees who collate this information consisting of students/administration, permanent staff who are CPV qualified valuers and contracting companies.

The council classifies the properties within their municipal area based on various features including type of construction, use, building size and land area.These features are then weighed and analysed against sales of each type of property from 3 months before and after the re-valuation date (the next one being January 2008), within the same municipality to determine the market value.

The purpose of a council rates valuation is to divide the whole budget of the council equitably between the rate payers – being owners of commercial, residential and industrial properties.This is done by applying a rate in the dollar by the capital improved value of the property.Other information gathered by the valuation process is used by other government departments for the collection of say, land tax.

The final analysis of each subject property ends up on a rates notice issued to the property owner and is broken down into three different values:

1.Site Value

2.Capital Improved Value (Land Value & Value of Improvements)

3.Net Annual Value; which under the relevant legislation is calculated at 5% of the CIV.The NAV is meant to be an indication on the rental value of the subject property.

The accuracy of the valuation will depend on the diligence of the council valuation staff.Some councils pride themselves on delivering up the most accurate valuation possible, whilst others are happy to appear equitable between all rate payers.

It must be noted that these valuations are done every two years but can only be accurate for a short period of time after the relevant date.For example, the last valuation was 30th January 2006, hence being valid for only a short time thereafter. As at today's date, areas close to the CBD (inner circle), have seen the market values of property drastically understated on their rates notice; whilst areas in the outer circle such as Werribee, may be overstated – purely due to the direction the market has moved since the last valuation date.

Other important things to note are that only approximately 10% of properties in a given municipality are inspected on a rotational basis for a re-valuation and there could be 40 -50 thousand homes in only one municipal area.

Contrary to council rates notice valuations, properties valued by an independent property expert are conducted for different purposes such as refinancing, investment portfolios, family law, body corporate to name a few.

The independent valuation process starts with a physical inspection of the property. The valuer walks around and through the property taking measurements and note of the number and type of rooms, fixtures and fittings, and improvements. The valuer then employs three methods to further analyse the property in order to come up with a value range: direct comparison, summation, and capitalisation of net income methods.

The field of property valuations is often described as an art and not a science, as it takes into consideration so many tangible and intangible aspects of a property and its surrounds. Valuations are a professional opinion based on available evidence; valuers do not set new benchmarks. They must be guided by what has sold recently, that is, within the past six months.

The direct comparison method involves researching recent sales of similar properties in the immediate surrounds, referred to as 'comparable sales'. The subtle and not so subtle differences are taken into consideration to determine the extent to which these comparable sales can be used as a guide to the value of the subject property. In this way, apples are compared with apples and necessary adjustments can be made for the bruises.

The summation method is the land value plus the depreciated value of improvements, which comprises the dwelling plus ancillary features such as garage, pergola and swimming pool. Land value takes into consideration size, shape, topography, slope, location and surrounding infrastructure and amenities. The value of improvements incorporates the style, age, architectural features, layout, number and purpose of rooms, and renovations in addition to the overall appearance and condition.

The combination of these two methods allows the valuer to arrive at a valuation range. It is then up to the skill and experience of the valuer to consider any risks associated with the property or its location to be able to refine the valuation figure.

The valuer may also check these values by way of capitalising net income. This involves applying an investment yields to assessed market rental of the property to derive the current market value. This method is commonly used when valuing investment properties.

When refinancing or selling a property, one may ask - which is the preferred valuation to rely on?Given the fact that council rates notice valuations are conducted only every two years, and only 10% of properties within any given municipality are physically inspected, it is no doubt that an independent valuation is the way to go.Independent valuations are conducted on an as-needed basis and are reflective of the 'present'.Furthermore, banks and lenders will only accept valuations performed and signed off by an independent property expert listed on their panel of valuers.