Have you ever wondered what the real value of your investment property was and if you paid too much for it?
Perhaps you’ve felt a bit of ‘buyer’s remorse’ creep in after a property purchase, especially if your offer was accepted quicker than you expected or maybe you feel like you paid too much for it in a rampant hot market?
But you knew the true value of your investment property before buying it, didn’t you? Well, if you were doing everything on your own and maybe looking at the wrong data (or asking the wrong people), chances are you might have missed something important.
Whether you’re relying on median prices, online price guides, the listing price of the property, real estate agent market appraisals or even the bank valuation, there is a lot of conflicting information about property values. In fact, when trying to assess the value of your investment property, it’s almost guaranteed that these sources of data won’t match up.
Why is it so confusing? Well, the origins of each of these sources of information are derived in a different way.
Let’s look at each one and you’ll see why:
Median Price
This is the midway price of all the houses sold in a particular market over a set period, it’s not an average. This figure can be particularly distorted depending on the number of higher or lower sale prices.
Online Price Guides
While data in online sites like Domain, Realestate.com, On the House and PriceFinder can help estimate valuation figures, they still don’t capture every sale price in the area or account for things like market conditions, the age, condition and aspect of the property, position in street etc.
Listing Price
This is simply part of the selling agent’s marketing strategy, and perhaps an amount that the vendor would like to sell their property for. The vendor can be biased and emotionally attached to the property, or is just being optimistic, therefore this price is often different to the true market value. Listing prices have little to do with the actual value of a property.
Real Estate Agent Market Appraisal
This is often inaccurate as the agent may want to get a new listing, therefore painting a rosy picture of the property and could be inflating the figure. If the property doesn’t sell for this price, then ‘the market’ can be blamed.
Bank Valuation
Banks are looking at property in terms of how suitable it is to hold as security, not as a home to live in or an investment to create wealth. They want the property valued as if it needed to be offloaded by them tomorrow.
Not only can the above valuation methods be misleading, they also don’t answer the original question; how do you find the true market value of your investment property? Well, it’s not an exact science, but here are some tips to help get a much more accurate figure:
Step 1: Consider recently sold local properties
The most common method of how to value a property is to compare it to others that have just sold in the local area. The valuers that the bank engages to do this, will do exactly this.
We recommend that you only consider comparing sales with the following attributes:
- If possible within 1 km of the property you’re buying (larger areas for country regions)
- Sold in the last 3-6 months
- Similar in as many ways as possible to the property you’re trying to value
- You can get a list of sales for any suburb or postcode from Realestate.com.au, Domain, Residex or CoreLogic RP Data. If you ask a selling agent, they may be “selective” with the properties they show you as being comparable.
Step 2: Are they comparable?
Of the properties that have sold recently, focus on the ones that are most similar to your property.
In particular, look at the following characteristics:
- Location: Is the location the same distance from amenities / transport and are both streets alike in appearance?
- Size: Is the land size similar and is the living area comparable?
- Rooms: Are there the same number of bedrooms, bathrooms and car spaces?
- Quality: Are both properties built of a similar standard and type?
- It’s critical that you compare properties that are as similar to your property as possible, otherwise your final figure will be inaccurate
Step 3: Superior or inferior?
Once you have a list of 3-5 properties that are similar to your property, try to decide which properties are superior to yours and which are inferior. Try to be objective and reason why this is.
Step 4: Adjust for current market conditions
High auction clearance rates and a low number of days on the market are an indication of a warm to hot market. In this case comparable sales from more than 3 months ago may no longer be an indication of true market conditions. Make adjustments to your estimated value to take this into account and don’t pay too much attention to published discount percentages.
While these tips are to be used as a guide, we must stress that the valuation process really takes time, experience, know how, and a feel for the market. To get this done properly you need a professional on your side to take care of this job for you.
This will ensure you don’t overpay or keep missing out; either because you don’t have time to study the market conditions, or the online valuations don’t match up to real life market values.
