When buying a home, it’s good to know how to accurately estimate the value of the properties you’re interested in. It also applies when you intend to sell the house, having the price correctly will help to sell the house at the appropriate and win-win price. However, setting an unrealistic price will deter buyers. The value of your property can depend on factors such as the state of the market, current interest rates, and the type of property and the sold prices of similar properties in the area.
Ultimately the market will decide what it is prepared to pay, but you need a realistic starting point. It’s difficult, however, to find accurate advice and there is a lot of conflicting information from the media and real estate agents.
Often we hear and find the word of market value in this situation. The market value of a property is the price that would be negotiated between a willing buyer and willing seller in an arm’s length transaction after proper marketing. The value isn’t the current listing price or the amount of the most recent offer on the property. Herewith some steps that you can do to determine the value of a property.
- Find local sales
The most common method of how to value a property is to compare it to properties that have just sold in the local area. It is recommended to only consider comparing sales with the following attributes namely, within 1 km range of the property (larger areas for country regions) sold in the last 6 months and having similar to the property you’re trying to value. You can get a list of sales for any suburb or postcode from Residex or CoreLogic RP Data.
- Compare: are they comparable?
Of the properties that have sold recently focus on the ones that most similar to the property. In particular, look at the following attributes such as location, size, rooms, and quality. It’s critical that you compare properties that are as similar to your property as possible, otherwise, your final figure will be inaccurate. For more research and making sure on the comparison of the similar property, this can be done by try searching in the sold properties section of real estate websites and you can often find the old listings of that property. Another way is you can also try doing a Google search for the address. Driving past the property or using street view in Google Maps is another good way to get an idea of what the property is like.
- Assess; inferior or superior?
Once you have a list of 3-5 properties that are similar to the property you’re looking at, try to decide which properties are superior to yours and which are inferior. In this step, it is advisable and recommended to try to be objective. If this is difficult for you, ask a friend to decide which ones they think are better. You should consider the location, land size, living area, parking, views and standard of finishes when considering whether properties are superior or inferior. Bank valuers will normally look at the land and the building separately when doing this. You should now end up with a range for the value of your property.
- Market adjustment
In a hot market, comparable sales from more than 3 months ago are no longer an indication of current market conditions. Make small adjustments to the estimated value to take this into account. If you’ve been going to lots of open homes and auctions, you should have a good feel for what the market is like in your area.
There is no shortage of figures available to you that can help you learn more about the property market. Below are the ones we believe are most useful.
Median house prices. The median house price is an indication of what a mid-range house is worth for a particular area. You need to be careful if the location has not had many sales recently or has had a large new development sold there recently. This figure can be misleading for units because many of the sales are for new units, not existing developments.
Auction clearance rate. This is the percentage of auctions that result in a successful sale either at auction, before the auction or just after the auction. This varies across different markets but the trend is an excellent indication of the current level of demand.
Discounting percentage. This is available in the suburb profile on the Domain real estate website. This figure shows the average discount below the listing price that is agreed on. So if a property was listed for $1,000,000 and sold for $900,000, the discounting percentage would be 10%.
Days on market. This is the average number of days it takes to sell a property in that location. Again, this is an excellent indication of the level of demand in a particular suburb. Once again you need to take caution because facts and figures can be easily misinterpreted or can be twisted by the media. In addition to this, aside from the auction clearance rate, most of these figures will be at least a month or two old by the time they are published.