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How To Value A Property

how do you work out loan to value

What is the value of my real estate?

When buying a home it is essential to learn how to accurately estimate the value of the properties you are interested in. Unfortunately it is difficult to find accurate advice, and there is a lot of conflicting information from the media and real estate agents.

So how can you work out the value of the property you are making an offer on? This page is a quick guide to help you learn the process of valuing a residential property.

Please be aware that this page contains general information only and that if you follow any of the below steps you do so at your own risk. We recommend that if you want to be sure of the value of a property that you pay for a valuation from a professional.

The definition of "market value"?

The market value of a particular property is the price that would be negotiated between a willing buyer and willing seller in an arm’s-length transaction after proper marketing. The value is not the current listing price and is not the amount of the most recent offer on the property.

Step 1: Find Local Sales

The most common method of valuing a property is to compare it to properties that have just sold in the local area. We recommend that you only consider comparing sales with the following attributes:

  • Within 1 km of the property you are buying (larger areas for country regions).
  • Sold in the last six months.
  • Similar to the property you are trying to value.

You can get a list of sales for any suburb or postcode from Residex or RP Data.

For our customers we can send you a list of sales for free for properties in most states as we subscribe to RP Data.

You may also be able to find comparable sales by looking through the sold properties section of real estate websites. Try to search for the suburb you are interested in and then sort the results so that the most recent results are displayed first.

Step 2: Are They Comparable?

Look closely at the properties that have sold recently that are similar to your property. In particular look at the following attributes:

  • Location: Is the location the same distance from amenities / transport? Are both streets similar in appearance?
  • Size: Is the land size similar? Is the living area similar?
  • Rooms: Are there the same number of bedrooms, bathrooms & car spaces?
  • Quality: Are both properties of a similar standard?

It is critical that you compare properties that are as similar to your property as possible. Otherwise your final figure will not be accurate.

So how do you know if the properties are comparable if you haven’t been inside? Try searching in the sold properties section of real estate websites and often you can find the old listings of that property. Or try doing a Google search for the address. Driving past the property or using street view in Google Maps is another good way to get a good idea of what the property is like.

Step 3: Superior or Inferior?

Once you have a list of three to five properties that are similar to the property you are looking at then try to decide which properties are superior to yours and which are inferior. Try to be objective, if this is difficult for you then ask a friend to decide which ones they think are better.

You should consider the location, land size, living area, parking, views and standard of finishes when considering if the properties are superior or inferior.

Bank valuers will normally look at the land and the building separately when doing this. They may say something like “Superior land size & location, inferior improvements (house), overall the property is slightly superior” .

You should now end up with a range for the value of your property.

Step 4: Adjust For Market Movements

In a hot market comparable sales from more than three months ago are no longer an indication of current market conditions. Make small adjustments to your estimate value to take this into account. If you have been going to lots of open homes and auctions you should have a good feel for what the market is like in your area.

You can also use some of the figures listed at the bottom of this page to help you gauge how hot the market is.

Common Mistakes

If you are careful and do your research properly then it is possible to accurately value properties using the above method. That being said, some people make mistakes that

result in them offering too little and missing out on a property, or overpaying.

  • Comparing to properties on the market: Properties on the market cannot be used in a comparison as they have not had an agreed price as yet. All you know is what the seller is willing to sell for, many sellers have unrealistic expectations so please only compare your property to properties that have sold.
  • Being influenced by the agent: The agent may tell you of other offers on the property or interest at a particular price. In most cases the agent will be telling the truth, however you can never be sure. Rely on comparable sales only and ignore anything the agent tells you about other offers.
  • Not comparing apples with apples: Many people compare properties of completely different sizes, quality and locations. Be careful to make sure the sales you use are truly comparable. This is most difficult in markets with very few sales or for unique properties.
  • Emotional attachment: People selling their home often have a strong emotional attachment and so believe their home is worth more than it actually is. Buyers can also fall in love with a property and end up offering over market value in order to secure their dream home.
  • Not knowing the market: We strongly recommend that you go to as many open homes and auctions as possible so that you really begin to understand the market. Otherwise you will not really know which locations are superior to others.
  • New properties / off the plan: People often pay a premium for brand new properties. Try to compare your property to sales outside of the complex you are buying in as they tend to be more accurate. Government incentives for buying a new property can temporarily inflate demand making properties appear to be worth more than they actually are.

The biggest mistake of all is to listen to the media! Australians love to read about property! The media capitalises on this by running a story every time a new statistic comes out or “expert” proclaims prices are going to plummet or rocket skyward. The media is not a trustworthy source of information about the future of house prices.

Try to get your information from Residex or RP Data which both have regular newsletters with accurate information based on real facts. They have no vested interest that would cause them to mislead you.

Useful Data & Figures

There is no shortage of figures available to you that can help you to find out more about the property market. Below are the ones we believe are most useful.

  • Median house prices: The median house price is an indication of what a mid range house is worth for a particular area. Be careful if the location has not had many sales recently or has had a large new development sold there recently. This figure can be misleading for units as many of the sales are for new units which can distort the figures.
  • Auction clearance rate: This is the percentage of auctions that result in a successful sale either at auction, before auction or just after auction. This varies across different markets however the trend is an excellent indication of the current level of demand.
  • Discounting percentage: This is available on the suburb profile in the Domain real estate website. This figure shows the average discount below the listing price that is agreed on. So if a property was listed for $1,000,000 and sold for $900,000 then the discounting % would be 10%.
  • Days on market: This is the average number of days it takes to sell a property in that location. Again this is an excellent indication of the level of demand in a particular suburb.

Be careful as facts and figures can be easily misinterpreted or can be twisted by the media. In addition to this be aware that aside from the auction clearance rate, most of these figures will be at least a month or two old by the time they are published so they are always a little behind the current market.

Benefits for our customers

If you are a customer of ours then we can help to provide you with data & lists of local property sales using our subscription to RP Data, please contact your mortgage broker for more information. If you are not an existing customer then please enquire online to find out how we can help you with a home loan and to find comparable sales for the property that you are buying.

Please note that we cannot always obtain searches for properties in Victoria as the state government has put restrictions on the information available to RP Data.

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