Who do you ask? How much is this property really worth?
Written on the 9 December 2011 by Nathan Cross, Director of Wealthfarm Property Services
“How much is this property really worth?” is the first question you need to ask yourself if you’re looking to buy your next home or an investment property. If you’re considering selling a property, you need to ask yourself this same question.
The second question you’ll find yourself asking is who do I ask to get an accurate answer? The bank? The selling agent? A buyer’s agent? A valuer? They are very likely to deliver you a different ‘value’.
There are a number of things that can cause a buyer or seller to act quickly when it comes to property. These can include a sudden job transfer, a death in the family, divorce or difficulty in meeting mortgage repayments. Life changes such as these often motivate or place pressure on a buyer or seller.
Keep in mind the concept of ‘fair market value’ when you’re considering the option to either buy or sell a property. It’s important to acknowledge fair market value may not always be fair to you. Fair market value in property is best defined as the price a buyer will pay and the price a seller will accept given neither the buyer nor the seller is under any pressure to close the deal.
As a buyer you want to purchase the property at the best price possible. As a seller you naturally want to achieve the highest price for your home. Fair market value is impartial. Fair market value may not be ‘equitable’.
Now to answer the question “who do you ask how much is a property really worth?”
Turn to the bank for an answer on the value of a property and you’ll find banks have a tendency to value property at a figure that best reflects what they can reasonably expect to recover should they take possession and on-sell your property in the situation where you default on loan repayments.
The bank will either use their own staff or employ an outside firm of valuers to complete the calculation. It is not uncommon for property valuations to be completed without looking inside the property. The value the bank determines for a property when a loan has been sought may fail to accurately reflect the property’s market price.
Keep in mind when asking the selling agent what the property you’re contemplating buying is worth that he is obliged to work for his client, the seller. He can provide details of comparable sales along with an indication of interest in the property from other potential buyers. The role of the selling agent remains simple to try to maximise the sale price for his vendor.
Today more and more property investors and home owners are employing the services of a buyers’ agent. A buyers’ agent (a licensed estate agent) is always a good source of independent and unbiased property price advice. A buyers’ agent works for and is paid by the buyer.
A buyers’ agent will usually have an intimate knowledge of the property market in a particular geographic area. They will know what is selling and what isn’t. They’ll know the prices properties are selling for. A buyers’ agent can also assist with background research and pricing. They can utilise well developed negotiating skills to assist in obtaining the best purchase price. In today’s property market, research, property selection and buying at the right price are critical. If you don’t have the required time to research thoroughly we advise that you get a good team working for you to support you with your next property purchase or sale.
A property valuer could set you back around $400 for an independent professional valuation.
Such a formal valuation can be of limited benefit in setting a realistic market price to purchase a property. The valuation will often be low when choosing the asking price for a property when selling. In today’s market valuers are leaning towards the side of conservative when it comes to delivering their valuations.
Today there are property data and research companies eager to provide reports you can purchase online to estimate the value of a property. These online reports have been known to deliver a figure 10-20% out on the actual price of a property. It’s been reported they have estimated the property is worth considerably more or less than its actual value. The limitation in generating such an online report is that they don’t know whether the property is in original condition or if it has been recently renovated. These are important details to consider when estimating the value of a property.
If you would like any assistance with your budgeting or your personal or business financial position, please feel welcome to contact Wealthfarm on 1800 967 548 or firstname.lastname@example.org