You are here

How to estimate the value of a property (Transcript)

Getting value of property prices right is a high stakes game. Buyers want bargains while sellers seek maximum prices, yet every property has its own market value. In this video Investor Assist takes you through how to find the value of property and shows you how to make these estimates for yourself with a high degree of accuracy.

Transcript: How to estimate the value of a property

Hi, this is Peter Gianoli from Investor Assist. And welcome to our series of videos on investing in property. Getting property prices right is a high stakes game. In this video we're going to shed light on the ways in which you can estimate housing market prices and accurately estimate property values for yourself.

Buyers want bargains, while sellers seek maximum prices. Yet every property has its own market value. The information in this video will stop you selling for too little. Or, just as importantly, stop you buying a property for too much. The problem in property valuation is that the value of every property is different, and it changes continuously as sales of similar nearby properties push the potential market price up or down. This is made even more complicated by price anomalies, such as emotive must have purchases, distressed sales, mortgagee in possession sales, or sales to loved ones, which are priced far below what a property is really worth. There is a huge range of free property price estimates and reports available on the internet. Just Google "property price reports," and they will pop up. Be warned, however, many of these reports are marketed as free to simply get your email address and then you will be hounded by sales reps. Generally though, you can use this information to get median sale prices and price growth history for the suburbs or post codes that you're interested in.

Real estate agents will eagerly give you a free market appraisal to convince you to use their services. Their report should contain some comparable, recent sales in the area, and in particular, properties that they have sold. Be careful with this information if you are a seller, as most real estate agents will try and seduce you with an inflated appraisal to get your listing and then work on you to reduce your asking price. Some of the more professional real estate agents may provide you with a free comparative market analysis, generated by a major property data provider, such as RP Data. Many real estate agents subscribe to these services and pass the information onto their better clients. This comparative market analysis report can provide you with aerial photos, boundary maps, property sale history, and as a consequence, limits the extent to which an incorrect price estimate can be made.

Sworn valuers provide electronic, desktop, drive by, or physical valuations, or a combination of the lot. They are normally used by housing finance lenders, and can cost around $500 per valuation. The higher the loan value compared to purchase price, the more the lender will rely on this sworn valuation. This lender's valuation is something you will pay for as the borrower, but its purpose is to let your bank manager sleep well at night. Over time a sworn valuation loses its accuracy, as property values are constantly in a state of flux.

You can buy reports that provide an independent price estimate or value range for a property. These cost from $30 to $75 per report, and are available from major property data providers online. The cost of obtaining a paid property price report for each property you are interested in can quickly mount up. It is better, in fact, to do the initial research yourself. Every investor should always keep track of the current median sales price of properties in the suburbs which they are focusing on. If the property you are considering market value is fairly typical of the suburb, you can apply any percentage of change. Suburb median sales prices are available from real estate institute websites.

The last sales price that a property sold for is an excellent way to determine its current likely value. If the property hasn't been altered or improved significantly since the last sale, then median sales price movements will help you factor in any growth or decline in the property that you are looking at. When you compare prices of recently sold properties, the most relevant attributes for houses are the number of bedrooms, the quality of the house, and the appearance of the house.

Now, let's do an example valuation. If you are interested in purchasing a property, let's say number 6 Tulip Street, which is a three bedroom property, listed for sale at $480,000. By compiling a list of nearby, recently sold houses, from a local real estate agent, or listed for sale properties from an online website, and ranking them by price, you can obtain the median, or middle price. Now let's say that this median price is $430,000. Now this tells you that any property listed for sale at more than this price must have better attributes than number 6 Tulip Street, or is overpriced. You should then use Google Street View to check out the property, or maybe even do a physical inspection of the property to see that it looks like it is priced fairly. Whilst these estimates you generate aren't replacements for sworn valuations, the more you do them the more accurate you will become. And what's more, the more accurate you'll become at pricing houses accurately.

Thank you for taking the time to watch this video. This is one of a number of videos on our Guide to Investing in Property brought to you by Investor Assist. If you'd like more information on investing in property, please do not hesitate to contact us using any of the details on the screen. Thank you and good luck in your property investments. I'm Peter Gianoli from Investor Assist.

6 min 7 seconds