If you’re looking to buy your next home or investment property, or even if you’re considering selling your property, a question you would be asking yourself is: ‘How much is this property really worth?’
BY MICHAEL YARDNEY
Who do you ask – the selling agent? A valuer? A buyers’ agent? Maybe the bank?
It probably won’t come as a surprise that they’re all likely to come up with different values for your property.
You may have heard of the concept ‘fair market value’ in property, which is the price a buyer will pay and a seller will accept given that neither the buyer nor the seller is under pressure to close the deal. Pressure, or motivation, comes from life changes such as divorce, a sudden job transfer, difficulty meeting mortgage repayments or a death in the family and these things compel either the buyer or seller to act quickly.
Now when we’re talking fair market value, let’s get one thing clear – it may not always be ‘fair’ to you.
It may not be what you call ‘equitable’ because fair market value is impartial; it takes no sides and it doesn’t care about what you need or what you want. As a buyer you want to buy the property at the best price possible and as a seller you want to achieve the highest price for your home.
So back to my original question – who do you ask for advice?
The real estate agent
If you ask the selling agent what the property is worth, he’s obliged to work for his client – the seller. While he can give you details of comparable sales and an indication of interest in the property from other potential buyers, the selling agent should be trying to maximise the sale price for his vendor.
A valuer
You could pay $400 or so and get an independent professional valuation, but you’d probably be disappointed.
I’ve found that a formal valuation is of limited benefit in setting a realistic market price to purchase a property and will generally be low when choosing the asking price when selling your home. It’s just another figure to add to the mix of possible prices.
In general I’ve found valuers come down on the conservative side, particularly in the current market.
The bank
When you apply for a loan for your new property the bank will determine its value, but again this may not accurately reflect the property’s market price.
Banks tend to value properties at a figure that will reflect what they can reasonably expect to recoup if they take possession and onsell your property if you default on your loan repayments.
A buyers’ agent
A buyers’ agent could be a good source of independent and unbiased property price advice.
A buyers’ agent is a licenced estate agent, but the opposite to a selling agent, because they work for and are paid by the buyer.
If you chose one that works in the geographic patch you’re considering, they should have an intimate knowledge of the property market, what’s selling and what isn’t and the prices properties are selling for.
They can assist with background research and pricing and you can use their negotiating skills to help you obtain the best price.
To be successful in today’s flat property markets thorough research and astute property selection is important, as is buying at the right price. Investors can’t count on the rising tide of property prices to cover up their buying mistakes.
What do you think is the best way to determine the value of your property? Tell us what you think.
Michael Yardney is the director of Metropole Property Investment Strategists, a best-selling author and one of Australia’s leading experts in wealth creation through property. Subscribe to his e-magazine at www.propertyupdate.com.au. For more information about Michael visit www.metropole.com.au.
why would you use a buyers agent when you can use data from RpData or Residex for a fraction of the cost.
Comment by James — May 20, 2011 @ 3:13 pm
James
Good question James – have you ever bought an individual property report?
I have found that they can be 10 – 20% out on price – either up or down.
They don’t know if the property has had an air conditioner installed or whether it has carpets or polished floor boards..
They don’t know whether the property has been recently renovated or is in original condition.
They are the least accurate of all the methods and that’s why I didn’t mention them.
Thanks for bringing this up – I should have mentioned them for completeness
Comment by Michael Yardney — May 20, 2011 @ 4:48 pm
The value of a property is always a subjective thing. I believe (from an agent’s point of view) there are two prices in real estate.
The first is what I term the statistical price, which is the figure a valuer will give you based on recent sales of what he believes to be comparable properties (also subjective to a degree) in the local area. The valuer may also cross check this against a ‘land value plus improvements’ model or other such relevant models depending on the location of the property and the curent market.
The other price is what I call the emotional price which is the result of a personal attraction to a property which fits the exact needs of a buyer. This can often be stimulated by great staging, photography and carefully executed marketing strategy by a good sales agent.
If this is coupled with a good sales process and honed negotiation skills a premium price can be achieved. Our job as agents is to achieve this price on behalf of our vendors, but sadly there are many agents who do not see this as the main objective. You would not believe how many times I have been disgusted to hear “just get it sold and move on” during my ten years in real estate.
All these factors have a major effect on the price ahieved for a property on a given day.
How can we put ‘fair value’ on a property when there are so many variables in play? What we do know is it is worth what it sells for on the day when there is a meeting of minds on a perception of value between the buyer and the seller. As agents we need to remember who we are working for and focus on the emotional price not the statistical one as it is almost always higher.
Comment by Charlie Brendon-Cook — May 20, 2011 @ 10:21 pm
Charlie
You make a good point – clearly the “value” of a property is a very subjective thing.
But this can be to your advantage as a property investor.
While a good selling agent may encourage an emotional purchaser to overpay for their dream home, an astute investor may be able to use his negotiating skills to buy a property below its “value” from a motivated vendor.
Comment by Michael Yardney — May 22, 2011 @ 4:59 pm
Michael,
The agent working on behalf of the owner should be skilled enough and ethical enough to make sure this does not happen, after all we work for and are paid by the vendor. Our job is to get the best price and protect the vendor from accepting a price below the “fair value” of the property.
I often say to my vendors when I receive a low offer that the purchasers have every right to ask the question and I respect their right to try and get a bargain. It is my job to ensure that they don’t get one.
Obviously if the owner has received the third letter from the bank and it is in their best interests to sell fast this can change, however even then the best price, notwithstanding the requirement for a quick sale, is always the goal.
An astute investor should at least meet their match or preferably be challenged when it comes to negotiating with an agent. This is why you should never choose a young inexperienced salesperson to sell your greatest asset, especially if you are on the back foot.
I have successfully transacted many mortgagee sales and what I call pre-mortgagee sales in my ten years of real estate selling. Investors can swarm around these campaigns but it does not mean we are in for a fire sale. We are dealing with people here and this could be the difference between them getting off the hook or being left with a lifelong debt, however unfortunately we can’t win them all as some people bite off more than they can chew.
Comment by Charlie Brendon-Cook — July 10, 2011 @ 3:52 pm