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New laws in NSW have come into effect from January 1st 2016, in an attempt to prevent selling agents from price underquoting. This practice has been blamed for causing many consumers much disappointment, when the house of their dreams sells for far more than they hoped it would.

How do you prevent the selling agent’s price quotes from affecting your buying decision?

How do you ensure you never ever overpay for a property?

The real issue is that most buyers simply don’t really understand how to work out the fair market value of any given property. Most buyers are wishing that property was cheaper than it really is worth, and often find themselves creating reasons to substantiate this. When a selling agent tells buyers what they want to hear (lower end price quotes), this often motivates buyers to attempt to purchase the property.

Buyers very often let their emotions guide their way of thinking, or are not fully aware of the current market, which is why quoting a lower figure is so effective in creating more interest in the property and achieving a better result for the vendor.

It doesn’t really matter what price the agent is quoting, nor does it matter what the vendor wants to sell their property for either.

The most important thing is to work out what the fair and logical value is for the property, and then make sure you don’t pay any more than this. Any amount you can negotiate down from this level is a bonus.

So how can you work out the value of the property you’re considering making an offer on?

This article is a quick guide to help you learn the process of appraising fair price for a residential property. As Buyers Agents, before we recommend our clients make an offer on any property, we follow this process to provide them with a detailed appraisal.

By definition – “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 and isn’t the amount of the most recent offer on the property.

Step 1 – Find Local Sales

The most common method of valuing a property is to compare it to properties that have just sold in the local area. We recommend that you only consider comparing sales with the following attributes:

• Within 1 km of the property, you’re buying.
• Sold in the last six months.
• Similar to the property you’re trying to value.

You can get a list of sales for any suburb or postcode from Residex or RP Data.

Step 2 – Are they comparable?

Look closely at the properties that have sold recently that are similar to your property. In particular look at the following attributes:

Location: Is the location the same distance from amenities / transport? Are both streets similar in appearance?

Size: Is the land size similar? Is the living area similar? Is the land topography similar?

Rooms: Are there the same number of bedrooms, bathrooms and car spaces?

Quality: Are both properties of a similar standard of construction and finishes?

Views: Do the comparable properties have a similar outlook or view?

It is critical that you compare properties that are as similar to your property as possible. Otherwise your final figure will not be accurate.

So how do you know if the properties are comparable if you haven’t been inside?

Try searching in the sold properties section of real estate websites and often you can find the old listings of that property. Or 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 a good idea of what the property is like.

However, nothing beats a physical inspection as photos can be misleading, and often don’t tell the full picture. Try and talk with the agent who sold the property, there may have been circumstances that caused the property to sell for the price it did, for example;

• Zoning and future potential of the property/current D.A approval
• Any structural issues with the property
• Upcoming nearby developments that were going to affect the property
• Terms of the sale that affected the sale price
• Special levies in the building that were factored into the final price
• Easements affecting the property

You obviously cannot glean all this important information by simply looking at the professional sale photos of a professionally styled property.

Step 3 – Inferior, Comparable or Superior?

Once you have a list of three to five properties that are similar to the property you’re looking at then try to decide which properties are superior to yours and which are inferior. Try to be objective, if this is difficult for you then ask someone knowledgeable and impartial 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 if the properties are superior or inferior.

Bank valuers will normally look at the land and the building separately when doing this. They may say something like “Superior land size and location, inferior improvements (house), overall the property is slightly superior”.

• You should now end up with a range for the value of your property.

Step 4 – Adjust for market movements

In a hot market comparable sales from more than three months ago are no longer an indication of current market conditions. Make small adjustments to your estimate value to take this into account. If you have been going to lots of open homes and auctions you should have a good feel for what the market is like in your area.

Most Common Mistakes

If you’re careful and do your research properly then it is possible to accurately value properties using the above method. That being said, some people make mistakes that result in them offering too little and missing out on a property, or overpaying.

• Comparing properties on the market: Properties on the market can’t be used in a comparison as they have not had an agreed price as yet. All you know is what the seller is willing to sell for. Many sellers have unrealistic expectations, so only compare your property to properties that have sold.
• Being influenced by the agent: The agent may tell you of other offers on the property or interest at a particular price. In most cases the agent will be telling the truth, however you can never be sure. Rely on comparable sales only and ignore anything the agent tells you about other offers.
• Not comparing apples with apples: Many people compare properties of completely different sizes, quality and locations. Be careful to make sure the sales you use are truly comparable. This is most difficult in markets with very few sales or for unique properties.
• Emotional attachment: People selling their home often have a strong emotional attachment and so believe their home is worth more than it actually is. Buyers can also fall in love with a property and end up offering over market value in order to secure their dream home.
• Not knowing the market: We strongly recommend that you go to as many open homes and auctions as possible so that you really begin to understand the market. Otherwise you will not really know which locations are superior to others.

The biggest mistake of all is to listen to the media! Australians love to read about property! The media capitalises on this by running a story every time a new statistic comes out or “expert” proclaims prices are going to plummet or rocket skyward. The media isn’t a trustworthy source of information about the future of house prices.

Try to get your information from Residex or RP Data which both have regular newsletters with accurate information based on real facts. They have no vested interest that would cause them to mislead you.

Useful data and figures

There is no shortage of figures available to you that can help you to find out 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. Be careful if the location has not had many sales recently or has had a large new development sold there recently. RP Data also has current quarterly market movement on their website. While this is only specific to the whole Capital City, it does help guide you on the current market movement trend.
• Auction clearance rate: This is the percentage of auctions that result in a successful sale either at auction, before auction or just after auction. This varies across different markets however the trend is an excellent indication of the current level of demand.
• Discounting percentage: This is available on the suburb profile in 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 then the discounting % 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.

Be careful as facts and figures can be easily misinterpreted or can be twisted by the media. In addition to this be aware that 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 so they are always a little behind the current market.

If you would like an impartial appraisal on a property you are interested in buying, then contact us on 1300 132 970 to discuss.