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How to estimate market value of a property

Discussion in 'General Property Chat' started by Shaneo78, 19th Aug, 2016.

  1. Shaneo78

    Shaneo78 Active Member

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    This week I am researching how to evaluate the market price for a property.

    Obviously paying at or below the market value for a property is a worthy goal. You don't want to have to wait for a few years for capital growth if you have overpaid for a property. If you have a good indication of the market price for the property you can avoid emotional attachment and look clearly to see if the numbers stack up for this particular property.

    So my question is - How do you calculate the market price of the property or what you are willing to pay?

    From my understanding there are 3 methods to determine market price.

    1. Hire a property valuer to come through the property and determine market price - From what I have read, these valuations are often lower than market price in an effort to protect themselves from litigation. These appraisals can cost between $300-600. Have you used this method before? If so, what was your experience like?
    2. Various websites such as RP data which estimate market price - I have looked at various websites from Property Value, RPdata, domain and realestate.com. For a property which sold around the 500k mark, these valuations were between 150k in either direction of the sale price. These websites are usually automated and have no information about renovations which would affect the sale price. Is there one company that you rely on more than others? What is your experience with this method?
    3. Using comparable sales within the area - This one refers to doing the hard work yourself and finding comparable sales within the area to determine property price. The comparison should include 3 or more sales that meet the following criteria
    • Sold in the last 6 months
    • Close to the property (1km?)
    • Similar to the property you are trying to value
    Of coarse this is an exact science, the properties you are comparing will all be different. The neighbourhood, proximity to shops/transport, number of bathrooms, size of the property, age of the property ect. How do you account for these differences in the estimated market value?

    For example, if there are 2 properties on Smith street that are identical except for the second property has an additional bathroom, the first property sold for 500k. How much would the second one sell for with the additional bathroom? How will this change the sale price, and how can I estimate this with some confidence?

    Thanks for any feedback!
     
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  2. Scott No Mates

    Scott No Mates Well-Known Member

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    They are two similar blocks not identical with regards to location.
     
  3. Brady

    Brady Well-Known Member

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    Comp sales. It's exactly what the valuer and the websites use (data)

    Speak to your banker or broker, they should be able to provide you these reports at a click of a finger.

    As for the extra bathroom, look further then property on the same street - look for another property with an additional bathroom. Find a propertries that have the second bathroom and see what premium price they have paid.
     
  4. Brady

    Brady Well-Known Member

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    Here's a few quotes from another thread

     
  5. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    Don't bother with option 1. It'll cost you money and won't be particularly accurate anyway. Valuers have their own opinions and are also motivated by risk factors that the broader market may ignore. If you simply get valuations done and use that to make offers, you're going to spend a heap of money and be disappointed.

    Option 2 is a great set of resources but is full of limitations. These reports are statistically based. Much of the data they use is months out of date by the time the report is aware of it. The data inside the report is a useful component of your research, but you need to apply your own analysis to it.

    Option 3 is really the only way to go about it. By all means get the CMA reports from option 2, but you need to hit the streets. Got to inspections, attend auctions, even go to rental inspections (it'll help you understand what's in demand from renters). If you want to pay a reasonable price for a property, there's no avoiding the hard work...

    ... unless you're willing to pay someone else to do it. You can engage a buyers agent and trust them to do their job well. I avoid the larger companies, instead ask this forum for recommendations if you want to find a good one in a general area.
     
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  6. Steven Ryan

    Steven Ryan Mortgage Broker Business Plus Member

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    Comp sales are the only way to go.

    Also, if you watch the market like a hawk, walk through just about everything on the ground for a few months, you'll become intimately familiar with intrinsic value and get an intuitive sense which helps a lot when looking at comparables.

    Next best thing is watch from afar but you'll miss things (like structural issues that can drag prices down).
     
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  7. Brady

    Brady Well-Known Member

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    As above nothing beats knowing your targeted market, often people will look to negotiate a set amount / percentage off an asking price. You want to already know what the property is worth. Once you have been watching the market for a while you will know straight away what a property is actually worth. Then you can look to negotiate from there. Sometimes the asking price is already BMV
     
  8. Colin Rice

    Colin Rice Mortgage Broker Australia Wide Business Member

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    Hit the streets and network with local agents of your target area and let them now what you are looking for, just keep your convos and emails brief :)

    Also have your finances lined up via a broker who knows your short, medium and long term goals, not just what the cheapest interest rate is. Let the agent know you have been fully pre qualified for finance but dont tell them how much.

    The first thing they will be thinking is "can this guy get the finance" so appease them early its all in place and ready to go.
     
  9. MTR

    MTR Well-Known Member Premium Member

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    I am sure there is another thread on this subject
     
  10. Shaneo78

    Shaneo78 Active Member

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    Thanks MTR - I have been following this forum for a while now and have not found one, however this forum is wonderfully active and I may have missed it.

    Good insights Brady - Do you know where the banks/brokers get their comparable sales data from?

    Thanks Peter, Steven and Colin - I have looked at nearly 50 properties in my chosen area and attended a few auctions. I have been tracking the sales price of all the properties I have seen. My next step is to try and predict the sales of the properties I inspect over the next month or two before I buy.

    Apart from my mortgage broker/banker - Where else can I get comparable sales? Or is scrolling through realestate.com.au/sold/ the best way to find comparable properties?
     
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  11. Brady

    Brady Well-Known Member

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    Pending the broker/banker - most would be RP Data / Price Finder - which comes from data the companies purchase/source from sales results/agents

    If you're looking to buy and assuming you need finance I can't see why you wouldn't be using your broker or banker - they're getting paid one way or another and any decent one will have access to the reports. But otherwise can do it yourself, re.com, pay for subscription or Australia Home Sold Price, Property Sales Data, Victoria, New South Wales, Sydney, Canberra, Brisbane, Adelaide and Perth
     
  12. Shaneo78

    Shaneo78 Active Member

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    Cheers Brady - I will contact my mortgage broker regarding this.
     
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  13. MrFox

    MrFox Well-Known Member

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    As others said above disregard option 1 and 2. Comparable sales are the only way to do it. You are in Melbourne so the most accurate data in my opinion are from PDOL which is a website from REIV. It is not free but neither are other options like Corelogic (formerly RP data) or Price finder.
    Befriend and agent you can trust and ask them to give you all sales in a radius of 1 km for last 6 months of the property in question. Most agents will have access to PDOL and should be able to email you a CMA. Buy them a coffee. :)
    Things to take in consideration are the zoning of the property, which way its facing, any views, renovated or just land value, size, school zone etc.
    Also you can check all auction results every Monday to give you some idea what is going on in the market (REIV website - I do it every Monday morning). In Melbourne that is the best way to see how the market is performing as this is the way lot of homes are sold. The trick is to look at all data including all the passed ins.
    As you said this is not an exact science but that is the closest you will get.
     
  14. SeafordSunshine

    SeafordSunshine Well-Known Member

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    Just to be really
    Market Price,
    =willing but not pushed seller
    +willing but not pushed buyer
    = Market price.
    I hope this helps
     
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  15. big max

    big max Well-Known Member

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    Non of the above. So the calculation based on yield cf cost of borrowing cf your estimate of upside based on location.
     
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  16. big max

    big max Well-Known Member

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  17. MrFox

    MrFox Well-Known Member

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    Interesting thought. How do you estimate that?
     
  18. MrFox

    MrFox Well-Known Member

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    In my view the REAL way to make money is to be able to calculate an assets fundamental and fair value, regardless of the preset state of the market.

    Could you please explain how to do above?
     
  19. CU@THETOP

    CU@THETOP Well-Known Member

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    Look to comparatives in the immediate vicinity. Do a rough price per sq metre of land for similar style proximate houses. Don't go below unimproved capital value of land. Attend every auction and see the interest. Inspect every house. Turn up at the close of inspection and find out how many parties went through.
    RP Data if available is excellent. Otherwise watch the weekly auction results.
     
  20. zlatan9

    zlatan9 Well-Known Member

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    What data in RP Data do you find most valuable?