Ah yes…. the big question…
A discussion about property values reminds me of the story about friends at a bar trying to remember things like football players’ numbers, or songs by a particular artist. If someone googles the answer that’s the end of the conversation. Those friends don’t desperately need to know the answer, they really just like the debate and discussion about it.
It’s the same concept with the discussion about property values, but as no one can definitively answer the question, the discussion can last forever. And it often does, using all the rational and not so rational arguments comparing one property to the next and dissecting all the variations like, floor plan, design, aspect, size, location, finishes, features, etc. It is always interesting how different people weigh each attribute to arrive at a different value. ie. The value to them – not the general market.
Even when a property does sell (so hence the answer is revealed) the discussion continues about how the sale price was too high or too low, and how they should have bought it, or someone else should have bought it. (human nature is a funny thing).
So how do you know what your property is worth?
Fortunately, the market is more transparent today than it has ever been with most sale results available on property web sites. You can search sold properties of certain criteria and see exactly what price they sold for. But unless you know all the detail about that property and especially the things not on a web site, (like the quality of the views, any overlooking, etc.) you only have part of the story. Some sales prices are not disclosed, so a call to your friendly agent is often required.
There is no short cut to finding out what your property is worth. You must take the time (like a potential buyer does) and inspect other property being offered for sale to understand what things the market values and what it doesn’t, and then compare that to your property. Keep a record of the details and sale prices plus your comments on it so you build a basket of sales evidence over a period of time.
Here are a couple of other guidance points to help you work out the value…
- Use a basket of sales to be more confident of value. Don’t “hang your hat” on one sale.
- Don’t average comparable sales. Adjust each sale to yours separately but you can weigh one sale above others if it is more comparable.
- Be careful of units of comparison like $ per square metre, or yield. They are a great quick check or guide but they can be misleading
- Cost does not equal value. ie. Your property’s value may be more or less than what you have spent on it.
- Ask for help – especially from agents.
- Don’t google the answer. It’s often wrong.
Actually, everyone googles “what is my property worth” so here is what you will find and how to interpret it. There are many web sites and apps all too happy to posture a view on what your property is worth. www.domain.com.au and www.realestate.com.au have value estimators as do many others.
They calculate your property’s value using a multiple regression analysis which looks at all the sales and analyses their quantifiable features like number of bedrooms, bathrooms, car spaces, land size (houses), building size, suburb, age of the building, and a few others like date of sale. It then works out an algorithm and applies it to your property to estimate a value. It may also generate a confidence range based on the strength of correlation of the sale prices to the quantifiable metrics.
Unless there are numerous very comparable and recent sales, these formulated valuations are often inaccurate as many features like view or aspect are not quantifiable. The algorithm can’t formulate that a sale was low because it had no natural light to the second bedroom, or another sale was high because it had amazing city views. If the web site does arrive at an accurate value, then it is a bit of luck or it just agrees with your view on value. You may both be right or wrong. You need to figure out values the proper way which is obviously the best and most reliable way.
There is no substitute for spending the time to understand what your property is worth. Even expert valuers may not agree on a value as there is an element of subjective judgement. Some say auction is the ultimate judge on price which is pretty true, but if you auctioned the same property each month for a year, there is a good chance you would see 12 different (but similar) sale prices. That is why an agent provides a value range.
Understanding your property’s market value is important, so work closely with your agent as they will be able to make more accurate adjustments to the comparable sales and provide a more confident market value range.
Oh … one last thing on value. My Grandfather, Henry (Ray) Wood was an agent for 50 years and he often said “There is nothing like owning a property to increase its value”. His point was, everyone has an inflated view of their own property’s value. It is human nature. We prefer what we own so be honest with yourself and even ask someone else to help you analyse your research.
Please comment or let me know your thoughts below.