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. It is not the current listing price nor the amount of the most recent offer on the property.

When buying a house, it’s always good to know how to estimate the property value of the houses you’re considering accurately. It’s hard to make an offer on a property or bid at auction if you can’t work out what it’s worth.

Asking the price won’t be very helpful. Owners can put their property for sale at any price they like and they may have unrealistic expectations. The price guide agents provide before auctions is also unreliable.


How Accurate Are Online House Valuations?

There are websites like CoreLogic that can provide electronic valuations of a property. These valuations might be accurate If the property hasn’t been renovated since the valuation, the market isn’t rising or falling, there are lots of comparable sales in the area, and the property was purchased in the last few years. As most properties don’t meet all of these criteria, online valuations are not accurate enough to be relied upon.

It’s best to use comparable sales combined with your own research to value a property. Valuing a property using comparable sales is fairly straightforward and requires only readily available information. We recommend that you pay for a valuation from a professional.



How To Calculate The Market Value Of Property: Four Simple Steps

There are four key steps when valuing a property using comparable sales:

Step 1: Find Local Estate Sales

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

  • Must be houses or apartments.
  • Within 1 km of the property you’re considering buying (larger areas for country regions).
  • Sold in the last six months.
  • Similar to the property you’re trying to value.

For our customers: We can send you a property report that includes a list of property sales in most states for free, as we subscribe to CoreLogic.

You can get a list of sales for any suburb or postcode from Residex or CoreLogic RP Data. You may also be able to find comparable sales by looking through the sold properties section of real-estate websites. Try to search for the suburb you’re interested in and then sort the results so that the most recent are displayed first.

Step 2: Check Comparable Property Values

Of the properties that have sold recently, focus on the ones that are most similar to your property. These are known as comparable properties and help to estimate the property value closely.

In particular, look at the following attributes:

  • Location: Is the location the same distance from amenities/transport and are both streets similar in appearance?
  • Size: Is the land area similar and is the living area similar?
  • Rooms: Are there the same number of bedrooms, bathrooms and car spaces?
  • Quality: Are both properties of a similar standard?

It’s critical that you compare properties that are as similar to your property as possible, otherwise your final figure will be inaccurate. It’s useful to get a look at the inside of a property when determining this.

Try searching in the sold properties section of real-estate websites, where you can often find the old listings of that property, which may have pictures.

You can also 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 better idea of what the property is like.

Step 3: Higher Or Lower Value?

Once you have a list of 3-5 properties that are similar to the one you’re considering, try to decide which properties have a higher value than yours and which have a lower value. If this is difficult for you, ask a friend to decide which ones they think are better.

You should consider the location, land size, living area, parking, views and standard of quality when considering whether properties are superior or inferior. Bank valuers will normally look at the land and the building separately when doing this.

Once this is done, you should have a range for the value of your property.

Step 4: Adjust For Housing 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 estimated value to take this into account.

If you’ve been going to lots of open homes and auctions, you should have a good feel for what the market is like in your area. The auction clearance rate tells you how hot the market is:

  • 40% = falling market, buyers have the advantage
  • 50% = steady/slight falling market
  • 60% = steady prices
  • 70% = sellers market
  • 80% = strong seller’s market, prices are rising fast
  • 90% = completely insane!

If you’re missing out on properties because others are offering or bidding more, then you’re probably not adjusting enough for market movements.


Common First Home Buyer Mistakes

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

Comparing Properties Still On The Market

Properties on the market can’t be used in a comparison, as they have not had an agreed-upon price as yet. All you know is what the seller is willing to sell for. Many sellers have unrealistic expectations so please compare your property only 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 but you can never really be sure.
Rely on comparable sales only and ignore anything the agent tells you about other offers.

Not Using Comparable Properties

Many people compare properties with completely different sizes, quality standards and locations. Make sure the properties 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 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 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 know which locations are superior to others.

Valuing New properties/off-the-plan

People often pay a premium for brand new properties. Try to compare your property to sales outside of the complex where you’re considering buying, as they tend to be more accurate.

Government incentives for buying a new property or off-the-plan properties can temporarily inflate demand, making properties appear to be worth more than they are.

Listening 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 an ‘expert’ proclaims prices are going to plummet or skyrocket. This makes the media a poor source of information about the future of house prices.

Try to get your information from Residex or CoreLogic instead. Both have regular newsletters based on real facts and statistics. They have no vested interest that would cause them to mislead you.


Property Market Data And Figures

There is no shortage of data available to help you learn 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 using this price if the location has not had many sales recently or has had a large new development sold there recently. This figure can also be misleading for units, because many of the sales may be for new units not existing developments.

Auction Clearance Rate

This is the percentage of auction listings that result in a successful sale either at auction, before auction or just after auction. This varies across different markets but the trend is an excellent indication of the current level of demand.

Discounting Percentage

This is available on the suburb profile on the Domain real-estate website. This figure shows the average amount below the listing price that properties usually sell for in an area. If a property was listed for $1,000,000 and sold for $900,000, the discount percentage would be 10%.

Days On Market

This is the average number of days it takes to sell a property in a location. Again, this is an excellent indication of the level of demand in a particular suburb.

Be careful: facts and figures can be easily misinterpreted or twisted by the media. Also, aside from the auction clearance rate, most of the data discussed above se will be at least a month or two old by the time it is published.


Summary

  • Don’t rely on online valuations.
  • Ignore the asking price and agent’s price guide.
  • Look at recent sales of similar properties and consider if they are inferior or superior to your property.
  • Once you have a price range from recent sales, adjust for a rising or falling market.
  • Use the auction clearance rate to work out how hot the market is.

Benefits for our customers

We can provide you with data and lists of local property sales using our subscription to CoreLogic. Please complete our free assessment form to find out how else we can help you find a home loan and comparable sales for the property that you’re buying.

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