Correct estimation of market value is one of the most important things for a successful property sales campaign.
Nowadays, with an abundance of data and valuation tools available online, anyone can quite quickly estimate the value of their property. However, certain procedures and guidelines need to be followed for the valuation to be accurate.
In this article, we analyze the three best ways anyone can use to fairly accurately estimate the value of their property.
Why is it important to be able to analyze market value yourself?
In a nutshell, it’s important because only then you will be able to know what a good or a bad offer actually is and make educated decisions within the process of selling your property.
Furthermore, the following is something very crucial for homeowners to understand – property appraisals are part of an interviewing process where you ultimately choose an agent to represent you. Therefore because homeowners are looking to get as much as they can for their property, agents often promise they will get them a better price without actually having the evidence to support it.
This is dangerous for the owner and can go wrong in so many ways.
So doing your own research and being objective about what the actual market value of your property is (remember, market value and listing price are and should be two different things depending on your situation), will not only help you make better decisions throughout the whole campaign, but also help with choosing a company you can actually trust.
1. Using AVMs (automated valuation models)
There is a number of automated valuation tools available online with most of them using comparable methods that lead to very similar estimations. To mention a few trustworthy ones: Propertyvalue, Realestate.com.au, Domain.com.au, REALas should give you similar results (however, cross-checking between them can never hurt when we’re talking about such huge amounts of money).
Usually AVMs are quite accurate (given they have sufficient sales data), however you need to check whether the photography and general information about your property is correct and up to date – bedrooms, bathrooms, parking, build year and building type, internal, external and land sizes etc. If it is, more often than not the AVMs estimates will be fairly accurate. The less information there is, however, the less you should trust these estimates (you can update this information by contacting the provider and use the tool after the information has been updated).
Another helpful tip while looking at the AVM estimates is understanding that they are made using hedonic valuation models that standardize property characteristics (in simple terms, working with averages) – the end result is that these models work best with average, non-unique properties. If, for example, the interior quality of your property is much lower or much higher than the average in your area then the market value will also usually be lower or higher than the estimation provided by the AVM.
In most cases automated valuation tools do not model extreme cases well and generally overvalue poor quality properties and undervalue those which are higher quality than average. If your property has unique characteristics such as Harbour Bridge views (higher), heavily sloping lot (lower), pool (higher) etc., then you should adjust the given estimate accordingly as AVMs don’t account for specific and/or unique features if they are not common in your suburb.
Furthermore, if your home went through a huge renovation after it last sold, automated valuation tools will probably not account for this and will heavily undervalue the property.
Owners of townhouses should also be careful when looking at automated valuation model estimates as often it underestimate the value of townhouses (by as much as 20% in some cases), because most AVMs categorize townhouses as apartments.
2. Checking for comparable property listings on the market
Pretty much all properties in Australia are sold through online listing portals such as realestate.com.au, domain.com.au and etc. Even if you are using automated valuation tools or checking sold property data yourself, comparing your property to existing properties on the market is advisable as well.
To get an accurate estimate of the value of your property using this method you need to find 5 to 10 (the more the better, if possible) comparable properties that are currently for sale in your area (the closer they are to your property the better) and calculate the median listing price. This might not be the most accurate or quickest method, however it should help you gather some evidence to compare with the estimation of an AVM and be more certain about the valuation.
Furthermore, by using this method you’re actually looking at what is happening in your area right now rather than just looking at past sales data. It will allow you to have a better understanding of what buyers are able to choose from and understand the current supply in your suburb. We’ve seen cases where past sales data suggests a price estimate that is 15% to 20% lower than what directly competing properties are listed for – unless you’re in a rush to sell, there is no point in listing your property for so much lower than the market.
What homeowners have to be aware of (and this is where most lose objectivity, because it is human nature to try to justify a higher price) is the fact that, in most cases, listing prices are higher than real market value.
Therefore after assessing the median listing price of comparable properties, it is advisable to deduct the average vendor discount in your area which can be found on propertyvalue.com.au (when you input your address, check the market trends tab and you will see the discount rates shown in percentages).
Bonus Tip: also check the average vendor discount in surrounding areas to make sure you have the correct figure as sometimes due to lack of sales in certain areas this estimate might be slightly off. Furthermore, deducting about 50-60% of the full average vendor discount rate is advisable.
3. Estimating value from an investment perspective.
Probably the easiest and quickest valuation method you can perform yourself as you only need to find two numbers to estimate the value of your property.
Firstly, you need to know what is the rental price of your home under current market conditions. If your property is not leased at the time of doing the analysis, check if comparable neighboring properties are – this will give you an idea of what tenants are currently paying for homes like yours. Another option is to go to domain.com.au or realestate.com.au and check what are the asking rental prices for similar properties in your area and how long have they been on the market. Also, don’t forget to look for the difference between prices in homes that have been on the market for more than three weeks versus newly listed properties – it could give you a better indication as some properties are overpriced and stay on the market for a while (a well priced property should not sit on the market for longer than 3 weeks).
The second step is to go to a website such as propertyvalue.com.au or microburbs.com.au, where you will find the median gross yield in your suburb. Afterwards, multiply the weekly rent by 52 and then divide by the yield percentage. So for example, if the median gross rental yield for your apartment in your area is 3,5% and the median rental price is $400, then the calculation would look like this – 400×52/0,035=594286. In this given example, the value of the apartment in question would be close to $595,000.
Of course, using the same median gross yield for all properties in the area is not extremely precise, but it is good enough for a quick, relatively accurate estimate which then could be compared to results from AVMs and comparables analysis.
Bonus Tip: for more precision, you can reduce or increase the median rental yield used in the calculation by a few tenths of a percentage according to your individual property features – if, for example, the interior quality of your home is a lot better than most homes in your area (reduce) or every other property has a view of the Harbour Bridge, but yours is blocked by a tree (increase).These examples might sound a little bit counterintuitive, however the reasoning for it is that if the property has positive characteristics compared to other properties in the area an investor would be satisfied with lower yields, as liquidity when selling the property would be higher, and vice versa when the property has negative characteristics.
To conclude, after using these methods to estimate the value of your property yourself, you should seek out professional help and just hear their opinion in order to make sure you avoid making any critical mistakes. However, when going through the process of gathering information and looking at different factors that affect the value of your property you will get more educated and will be able to better assess the truthfulness of the professional you are going to use.
At Inreal we’re putting a huge emphasis on correct property valuation and initial analysis with building a whole data science team to take care of this process as this is one of the most important elements to conducting a successful homes selling campaign. The right presentation and advertising of a property are very important as well, but without the correct initial pricing the entire property sales campaign could be seriously jeopardized.
Each property should be analysed on a very individual level based on statistical analysis, industry experience and local knowledge take into account factors such as: current market conditions and trends, competitive listings on the market, past comparable sales, suburb characteristics, individual property features, liquidity, capital growth potential, uniqueness and etc.
Above everything, an in depth property sales strategy analysis gives homeowners peace of mind and realistic expectations in terms of market value, if and how a premium price could potentially be achieved under current market conditions and what is the expected timeframe to sell.
Inreal Property Advisory is a full service real estate agency – we take care of the whole home selling process for you, from start to finish, for a fee that is fair for everyone.
Get in touch with us to discuss if we could be a good fit for you as well, don’t settle for ridiculous commission fees. Give us a call at 1800 865 011, text to schedule a call for another time or simply check us out at inreal.com.au.
Inreal Property Advisory is a licensed real estate agency in New South Wales (licence no. 20237732).
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