When searching for property, estimating market value can be challenging at the best of times. However, if you are a first-time buyer, or if the market is moving rapidly, it can be even more difficult.
We are currently in a market where depending on location, median values are rising and properties are selling well above reserve. However, you still do not want to be in a position where you overpay for the property and its location.
In fact, there are some key metrics and rules which can help you estimate a property’s value. Let’s delve into how buyers can accurately estimate the value of a property in a rising market to avoid disappointment, and avoid over-paying.
Firstly, what is “market value”?
The market value of a property is the price that is negotiated and paid between a willing buyer and a willing seller, in an independent arm’s length market transaction. Market value essentially becomes what a committed buyer is willing to pay for the property.
The market value is not the current listing price nor the most recent offer that has been received by the vendor.
Why do some properties sell above their price guide and reserve price?
When a property is first listed on the market, real estate agents will use comparable recent sales to form an estimate of its selling price. This estimate is included in the agency agreement with the vendor. In Victoria, comparable sold properties must be included within the Statement of Information, which is a document available to potential buyers.
However, given a sales campaign may track for 4-6 weeks, agents are essentially relying on yesterday’s data to estimate tomorrow’s value. As a campaign progresses, agents may adjust a price guide based on feedback from buyers and any offers rejected by the vendor.
When a market is moving, it’s very difficult to be accurate. Furthermore, when there are properties that are unique, it makes it very difficult to appraise them accurately.
The importance of comparable sales
When conducting your research and due diligence on recently sold properties for your desired location, be sure to focus on the ones that are most similar to your chosen property. Search in the sold properties section of www.realestate.com.au and www.domain.com.au and specifically look at the following attributes:
- Location and proximity: Are both locations the same distance from key amenities and are both streets similar in appearance? Are both properties in the same “pocket” of the suburb? For example, the better side of the main road, closer to the beach?
- Land size and features: Is the land size similar and is the overall living space area similar between both properties? Are features similar, for example pools, park views etc.
- Rooms: Are there the same number of bedrooms, bathrooms, living spaces, garages and car spaces?
- Home quality: Are both properties of a similar standard? Or is one inferior or superior to the other? Or is one a new build, versus a heavily renovated home?
During your value estimation process, it’s critical that you are comparing properties that are similar to your chosen property – and sold within a similar period – otherwise your final estimation figure may be inaccurate.
The importance of home inspections
Physically inspecting homes will allow you to understand the positive and negative variables that affect value – something which may not be evidence from campaign photos alone. It goes beyond the size of the home or the number of bedrooms or bathrooms.
This includes the overall floorplan and natural flow, neighbouring properties, park or beach views, any electricity poles nearby, street space, aspect, privacy and noise levels. When you are searching for your home, it’s so important to inspect a solid number of houses, to give yourself a better understanding for how a property compares, and what the underlying value is.
Remember, viewing homes that are not within budget can be a waste of energy and set you back months. By the time you experience frustration and realise properties are selling well beyond their guides, a month or two may have passed and prices have continued to rise.
It is so important buyers have a keen understanding of value in their target locations, which means paying very close attention to recent sold results; rather than price guides.
Finally, the highest prices are usually achieved when multiple committed buyers fall in love and emotionally connect with an extremely desirable property – and are then prepared to compete and spend as much as they possibly can to successfully secure it.
Forming your estimate of value
In a rapidly moving market, a property will sell for the best price someone is going to offer – and as a buyer, you sometimes cannot rely too heavily on the price guide. If you think you have a comparable sale, use that to form your estimate of value. If the comparable sale is a few months old, make small adjustments to your estimate to take this into account.
If you’ve been going to many open homes and auctions, you should have a good feel for what the market is like in your chosen location. And of course remember, housing and property is a long-term game and you should plan to hold your asset through at least one or two cycles (10-20 years). Don’t let short-term “expert predictions” or media speculation change your long-term course. To learn more about key property investment terms, see our article Key Property Investment Terms and Jargon explained.
Always seek advice from a trusted professional.
Purchasing and investing in real estate is exciting and when done well, can significantly transform your life. Your local One Agency specialist, lives and breathes real estate in your area and has insights into exactly what is happening in your community.
Now is a great time to get started on your property journey, or continue climbing the property ladder, as interest rates are at an all-time low. Our agency is also seeing high-quality family-oriented supply begin to come onto the market, and this is set to continue as we progress through summer.
To learn more about the benefits of real estate investing and what prices may do long-term, please contact us at One Agency. With One Agency being one of Mildura’s most trusted real estate agencies, we are well placed to provide you with our view of the current market based on our local experience. We’ll thoroughly guide you through the process and help you take advantage of this opportune time in the property market.