NSW First home buyer - analysis

Hi folks, long time lurker. I am looking to buy my first home (PPOR) and would love to get some feedback on my analysis of its value. I'm a rookie, so be gentle!

It's a 4 bed, 2 bath, 1 car detached double brick home (rendered) on a large 1,400 sqm block with good landscaping. It's on the market for $890,000 - $960,000. The NSW land value registry has it pegged at $485,000 as of August 2019.

The median price in this area $650,000, with the median for 4 bed homes at $790,000.

There isn't much to warrant this house being so far above median - it's a late 50's build (though it has been decently renovated), small bedroms, no ensuite, no internal laundry, no view. It's an average house on an averge block in an average location. It's been on the market since August 2019, and this is their second attempt at selling (they last tried in 2018 at a higher price point). I think the reason it hasn't sold is because the living room is small, there's no internal laundry and 2 bedrooms don't have built ins. That, and it's overpriced.

How do you properly analyse what the price should be in order to make offers? The two methods I have tried are:
1) look at sales for 4 bed homes over the last 12 months and get a price per sqm for the land size, extrapolate this to the size of the property (this is rudimentary and yields a ridiculously high figure because of a few expensive places within stunning views),
2) look at how much the median price for 4 bed homes in the suburb has increased since the home was last sold in 2015, and apply this price increase to the property.

If I take the median percent increase for 4 bed homes in this suburb between 2015 and now, it's been 12.66%. The owners bought the home in 2015 for $675,000. So, the owners seem to think their house has increased in value 25% over the same time without much material improvement.

Therefore, the price range should be more like $787,600 - $844,900, which represents a 12% increase in value since they purchased in 2015. This is not even considering any market impacts resulting from covid, just 'fair' value.

Am I doing this wrong? Any feedback highly appreciated!

GG

 

What are you asking, exactly?
Offer what you think its worth. If the seller doesnt agree with you, you wont get it.
You want it? Offer what the seller thinks its worth.

There is no such thing as fair value, only market value.

 

I'm essentially asking how you work out a fair and analytical way to make offers, other than just what your gut tells you to offer. Do investors, real estate agents etc just price places on gut instinct alone? Surely there is something more quantifiable to the old adage of 'whatever you think it's worth'?

Like I said, I'm a first timer so I don't know how people do this.

 

Thats your problem. You are looking for a fair offer.

You should offer the lowest the seller is willing to accept. That might be unfair to the seller, or unfair to you.

Start with recent sales, adjust for property type and market conditions.
Dont fall in love with a property. You dont get this one, wait for the next one.

 

Good advice, thank you! I need to stop overthinking things

 

If you're trying to value a property, you should aim to do what professional valuers do.

Basically look at comparable sales and then extrapolate as needed where need in places where the property is either superior or inferior.

It requires a lot of experience in looking at property though, so I recommend getting out there (I guess virtually now) and looking at as much as you can in your targeted area/price bracket.

 

Yeah, this is what I am trying to do. It's hard though, because it's comparing apples and oranges - e.g. one has a nice view, but a carport rather than garage, etc. Comes down to how you value these features I guess.

Yep, I definitely need to hit the pavement (or the mouse) and get a really good feel for what's out there. Thanks!

 

Focus on one or two suburbs and one property type (e.g. houses). If you look at 50 properties and all their sale prices, you have a pretty good idea of what the market values each item.

 

Thanks! Yeah, this is what I did to work out medians etc. I looked at all the 4 bed homes sold in the suburb over the last 12 months. Huge amount of variation in how the market was valuing things - e.g. plenty of very comparable properties with HUGE differences in sale price. I guess a lot of that would have come down to how good the buyers were at negotiating and why the sellers were selling.

 

Why do you want *that* place?

You've listed it's bad features: small bedroms, no ensuite, no internal laundry, no view and know that's it's over the median. Comparing recent sales and features benefits of other places, it doesn't seem great?

 

I like it because it’s north facing, beautiful garden, modest in size, in a street I like, in the suburb I want to live in. It’s also a flat, large block, so I can extend or rebuild as I enter different life stages and need more space for kids, etc. It’s a great first home for my needs. The demographic in the area is predominantly established families, looking for something much larger and either much more storage space and conveniences like internal laundry. I just got a really good vibe when I was in the house.

 

What price home?
If its ppor and you like it, just accept that you will overpay. Long term it will probably rise and if you like living there it’ll Probably be worth it.

 

Simple answer, peg the property price to 2010/11/12, inflate the price by CPI until current year.

That’s how it worked before Howard and Costello did their thing, and now almost nothing sells for fair value, it sells for what someone is willing to pay, which is often what a bank is willing to lend, which is 10 x an average salary (or more).