How Do You Determine A Property's Value?

Understanding a property’s market value is an essential step in the property acquisition process. This gives you confidence to purchase the property at the right price, and will prevent you from overpaying for a property. I've discussed a range of methods here; they are complimentary, and used in tandem will get you a very good idea of the true value of a property.

HOW DO WE DETERMINE A PROPERTY'S VALUE?

Price Estimate

This is an automatically generated figure that you will find on property data sites, such as Corelogic, Pricefinder, or Onthehouse. The estimate will give you the property value and the likely accuracy of the estimate. This is a useful starting point, however, it only takes into account the configuration of the property (bedrooms, bathrooms, car spaces) and land size, and does not take into account unique factors about the property. These include:

  • Property internal space and design
  • Build quality
  • Improvements – such as pool, outdoor features etc.
  • Aspect
  • Land geography
  • Street appeal
  • Traffic noise

Therefore, the more variables there are with the property, the less accurate this estimate is. In my experience these estimates can be hundreds of thousands of dollars off the actual value. The data given to you by banks such as ANZ Buy Ready and the Commbank Property App are only price estimates, and as such need to be viewed with a fair degree of caution.

Comparative Market Analysis (CMA)

This is a report which involves more detailed comparison and ranking of properties,  to give you a much more refined figure. The system we utilize involves comparing the target property against five recent sales and five recent rentals, and ranking the target property as either much better, better, similar to, worse, or much worse the comparison property. This gives a much more accurate idea of the price and likely rental return, as it allows you to take into account the factors listed above.

  CMAs are a much more accurate way of determing a property's value than a simple price estimate, particularly for properties with a range of features.

CMAs are a much more accurate way of determing a property's value than a simple price estimate, particularly for properties with a range of features.

Current Market Review

A quick way to reinforce the CMA we’ve conducted is to review what is currently available on the market. This enables you to quickly compare the target property’s price/rental return with other properties currently for sale and for rent. Of course, what a property is listed for can be well above/below its actual sale price, and you’ll probably notice some outlier properties which are either far too expensive or seem far too cheap. Generally speaking, the expensive ones will sit on the market for a long time, while the cheap ones have been priced to attract maximum interest and will usually sell for a much higher price than what’s listed (the agent will often use ‘offers over’ in this circumstance). If most of the other properties in the area are much cheaper or more expensive than the target property, you may need to review your CMA.

You can also get a quick gauge on the market by seeing the number of properties currently on the market in a suburb. A low number means the market is tight and is likely to lead to higher sales prices, while a high number is likely to lead to lower sales prices, as there’s lot of competition between sellers.

Land Value

This is useful when assessing the value of a house. The government assesses land value each year for taxation purposes, and these values are publicly available. The valuation will not be as high as the sale price for a vacant block in the area (it’s generally between 10-20% lower in your average suburb), but it gives you a good baseline. If there’s a big gap between the land value and the property price, you would expect a high level of improvements on the property to justify the difference.

Summary

By using all of these methods, we can get a clear picture of the market value, and the use of multiple methods reduces the chances of error. Of course, determining current market value doesn’t give you an insight into future performance, but at least it gives you peace of mind that you're paying fair price for the property you've chosen.