Henderson.

KNOW WHY: Determining a Property’s Value

One of the biggest issues home buyers and new investors run into is determining the real value of a property.

Many properties are often listed with a ‘price guide’ or offers above a certain figure. This can be a tricky thing to navigate and it can especially cause issues for people who are looking to buy at auction.

The good news is that by doing your homework, you can quickly determine a fair value for a property and that gives you a big advantage when the time comes to put in an offer or compete at auction.

The best place to start when trying to ascertain a true value of a property is to assume there is no price guide at all. In reality, a price guide is just the opinion of a sales agent. Many sales agents probably don’t even know what a property is worth and a vague price guide is just a tool they use.

In many instances, a property that is headed to auction is oftentimes quoted on the lower side to encourage more bidders at auction. While technically illegal, this is something that happens and causes a lot of headaches and disappointment for buyers trying to find a family home.

The most important element of knowing a property’s value is to understand the market. You can do this by becoming an area expert. Focus on the recent sales data in the suburb that you’re looking at buying in.

From this point, break down your analysis even further to the micro-market. Your goal is to look at comparable properties, so that means the same property type, land component and age it was built. These comparable sales will help form the basis for what you should expect a property to sell for on the open market.

After doing this for a couple of properties, you’ll be able to get a very clear picture of what those types of properties have sold for.

You can take this process one step further and contact the agent who sold the various properties to get a better understanding of how the sales process played out. They will likely be willing to share how much interest there was in the property, how many offers or bidders they had and what the overall demand looks like at the current time.

As a general rule, when properties are sold and there are multiple parties interested, this is when we see prices that might be selling above the market rate. In the current environment, where we see very limited stock and strong buyer interest, it’s worth assuming a property is likely to sell on the higher end of what it might be worth. However, this can really change from suburb to suburb and especially from one type of property to another. For example, a particular suburb might be very family-oriented and as a result, large homes are far more in demand than small units.

When you get a very clear picture of what a property is actually worth, it puts you in a far better position when you’re trying to buy. You won’t find yourself getting stuck in a bidding war and driving up the price to levels far above what it should be selling for. Similarly, it puts you in a strong position if you’re trying to negotiate, because you have clear evidence of recent sales that you can take to a sales agent.

However, the most important takeaway is to never simply take a price guide as gospel. Always do your own research to determine just how much a property is really worth.