How to determine residential property value

How to estimate the value of a property

It’s good to know how to estimate the value of the property you want to buy. Learn how to compare prices and properties. Find out what common mistakes you should avoid in the process.

| | 5 minute read

How to Estimate the Value of a Property?

When you’re in the market for a new home, it’s useful to know how to determine the value of the property you’re looking for. While this is by no means an accurate estimate, it helps you get an idea of the amount of money you’ll spend.

There are several different ways to value a property. In this article, we’ll focus on the market value. This is the final price the buyer agrees to pay the seller. It’s based on a comparative market analysis and differs from the listed price.

When estimating property value, there are a few things to consider. Comparing the property you’re looking at with similar ones is a good place to start. Here is a step by step guide on how to do it.

Focus on Your Local Area

Look at the recent sales near the property you’re interested in. If the house is in an urban area, search for sales within a 1km distance. If it’s in a countryside region, expand the perimeter a bit.

Only consider sales made during the last six months. The more recent the sale, the more relevant the price is. Of course, look for types of homes that resemble the one you’re interested in buying.

Look at Similar Properties

Limit your search to properties that are like the one you’re looking to buy. In doing so, consider the following features.

Dimensions: Look at the total size of the property. Compare the dimensions of the living area and the surrounding land area.
Locality: Focus on properties that are at the same distance from local facilities. These include main roads, schools, and transport lines.
Interior: Compare the number of rooms in both houses. See if there are as many dining rooms, bathrooms, and bedrooms.
Exterior: If the property you’re interested in includes a garage, find others that do. Also make sure the number of parking spaces is equal or at least comparable.
Condition: Only look at properties that are similar in quality. Consider how they’re built, how old they are, and what their current state is.

In some cases, the information you need won’t be available. If so, use Google Maps and the Street View feature. They may help you have a closer look at the property in question.

Compare the Features of the Properties

Now that you have gathered all the information, it’s time to do some comparison. In this phase, you’ll determine how similar the properties are to the one you plan to buy.

Take all the features listed above into consideration. Decide if the house you’re looking for is superior or inferior to the ones sold in the area. When doing that, be realistic.

Once you’ve compared the properties, exclude the ones that don’t fit the bill. You will now have a better idea of how much a property you’re interested in could cost you.

Keep Track of the Market

Because you’re looking at the market value, you need to adjust your estimate to changes in the market. In the current economic climate, the market is changing very fast. The sale prices of houses from six months ago may not be relevant anymore.

Going to auctions and open house events in the local area will give you the idea of how hot the market is. You can also talk to an expert who will inform you on the current state of the real estate business.

Other Things to Consider

Considering some further factors can give you more insight into the state of the market. Look for the following figures that will help you get the idea of how properties are selling at the moment.

DOM (Days on Market): This is the number of days it takes for properties to sell. It’s an average value, calculated from the day of the listing to the sale date.
Median Price: Specific to local areas, this number denotes the average worth of a house. This number often includes properties still in development and may not be reliable.
Clearance Rates: The number shows the percentage of houses sold in auctions. It includes properties sold during the auction, as well as before and after. This is a good indicator of the current demand in the local real estate market.

Note that these numbers may not always be relevant. Most of them are at least a month old by the publishing date. While they are good as indicators, they don’t provide the up-to-date view of the market.

Common Property Value Mistakes

When investing in property, buyers tend to make some mistakes. Using the notes highlighted here, they are easy to avoid. Here are some of the usual mistakes people make when valuing property.

Buyers are unaware of the real estate market conditions. If you’re buying or selling a property, it’s important to know how hot the market is right now.
Sellers have strong emotional ties to their houses. This makes it difficult for them to appraise the value of their property. They’ll often ask more for the house than its actual worth.
People compare properties to those currently on the market. Properties that are still on the market only have a list price. This price is in no way indicative of what they’ll sell for in the end.
The goal of real estate agents is to sell a property. Sometimes they’ll tell you that there are competitive bids on a house you’re interested in. They will also exaggerate when talking about the prices of comparable properties.
People compare properties that aren’t similar. When valuing properties, it’s important to compare them with those that resemble them. This means they should be similar in location, size, and quality.
Buyers invest in brand new properties. Government offers incentives for buyers who choose to invest in new properties. This increases the demand, thus inflating the actual value.
People use unreliable sources of information. Popular media focuses on prognoses and sensationalist expert statements. Reliable sources of real estate information base their stories on facts and statistics.

The Final Word

Please note that the information this article is general in nature and should be used as a guide only. Talk to an expert who can help you determine the value of the property you’re interested in.

Image via realestate.com.au 

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Alexi Neocleous

With over 20 years experience, Alexi has written extensively a wide cross section of financial topics. These topics range from financial planning, mortgages, property commentary and all points in between.

Buying Investing

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