What is Your Property Really Worth? (Part 1)

property investment melbourne - what is your property worth (1)

 

 

 

 

 

Valuation by Comparable Sales

If you are considering either selling or buying property in Melbourne, you want to ensure you get the best deal, so what is the property worth? What would that ‘someone be willing to pay’?

There are a few methods people use to help determine the value of property, and the most common method is usually by researching comparable sales in your area. There are many resources and websites available to do this and the process to me is no different whether I’m buying or selling a property in Melbourne.

1.      Use Recently SOLD Prices

The common first step is to check out prices of properties that are currently for sale, especially if someone is looking for a property to buy. It’s worth doing this to see what is currently out there, but this may paint the wrong picture as far as value is concerned as there are many sellers out there wanting more than ‘what the market is willing to pay’. Only sold prices are the ones worth looking at, and only the most recent as this is the closest to understanding the ‘current’ market values.

2.      Make Specification Price Adjustments

If you can find a few sold properties with prices and specifications listed, you can then compare these with the specifics of your property or the one you are looking for. The likelihood of finding something recently sold that is identical to what you are looking for is almost impossible, so you would then need to make value adjustments for variables such as land size, dwelling size & type, proximity to amenities etc, so that an ‘apples and apples’ comparison can be made.

You may however still find some discrepancies using this method. Some comparable prices can be significantly higher or lower than the ‘average’. This could be for a number of reasons. For example, there are those willing and able to pay more that market value, particularly some owner occupiers. Investors on the other hand are looking at the lower end of the scale, and there are some occasions where a seller is willing to sell below the average should they want to settle quickly.

3.      The Rule of Averages

However, these are exceptions and not a true reflection of the general market. My view is that whether you are a buyer or seller wanting to ‘make it happen’ in a reasonable time frame, the expectation should be closer to the average and any upside should be viewed as a bonus. If not, you could be waiting a long time to get what you are looking for, and may in fact end up worse off in the end. Time is money after all.

4.      Consider Market Trends

Markets also move over time and prices move relative to the whole supply and demand equation. The general long term economic trend is upwards, and property is no different, but sometimes there are short term negative adjustments that occur, just like the one the property industry experienced in recent years.

Property prices increased considerably above the long term average growth rate during 2009 and 2010. Confidence was high and the ‘sellers’ market was pushing prices up well above the odds. Unfortunately though it all just about came to a halt after that, and really only just kept trickling along following a fairly large price correction in 2012, where prices went down by around 15% or more. We have seen some reasonable transactions and growth in 2013, but there would be many buyers with properties that are still worth less than what they paid for them.

The bottom line is that reasonably accurate values can be determined provided you can establish a like for like on only the most recently sold properties, but there is always that economic factor that needs to be considered.

Allocating dollar amounts to these ‘adjustments’ can be challenging, especially in the absence of recent sales data, which is generally more likely if your property has development potential, particularly in growth areas. The good news is that you can always seek some professional advice as there are other methods available to provide the answers you may be looking for.

If you aren’t sure who to talk to, feel free to contact us, or stay tuned for part 2.