As a homeowner, a property investor or someone in the process of house hunting, it’s important to have a good grasp of all the elements that determine what a property is worth.
A full property valuation is multifaceted science and based on a number of interconnected factors, so it’s never a bad idea to get a professional to help you. However, if the DIY option appeals to you, it’s certainly worth considering.
Whether you plan on selling your home privately, want to challenge your estate agent, or are just curious, here’s what you need to know about factors to consider when valuing your own home.
Revisit the previous sale price of your property
Unless it was sold very recently, the last sale price of your property won’t tell you much, but it’s a solid place to start to get a reference point.
You’ll just want to note the sale price and the year it was sold to get a very loose benchmark to start with. That being said, if your property was last sold more than 5 years ago, you can skip right to step 2.
Make use of online tools
This is a trick that you can use to speed up the benchmarking process. There are plenty of online tools available that can give you a rough estimate of what the property in question may be worth currently. If you make use of three or four of them you’ll hopefully begin to see a trend emerging.
Of course, you just need to bare in mind that these online tools are rough and do not account for all the factors involved in a valuation. However, they will help you bring your basic benchmark estimate up to date a bit.
Find out how much similar properties have sold for recently (last 3 to 6 months)
Now look at the current sales price of properties that are currently for sale in your area.
Pay attention to the going rate for comparable properties (properties with the same number of bedrooms, and, if possible, similar attributes like big garden/ swimming pool etc).
It’s important to not only look at their listing prices, but also the prices they actually sold for. Sites like propertyvalue.com.au are great for this.
Look at current ‘days on market’ data to help determine demand
An important, but oft overlooked metric is the average number of days properties like yours spent on the market.
This will help you gauge the current demand and get a sense of how the market is behaving. Anything under 30 days and market is showing strong buyer demand.
Understand the current property market
This is the most important step in the process.
You’ll need to educate yourself on the current property market and just how much demand there is in your area. As Sydneysiders and Melbournites know all too well, the market cycles can have a massive impact on the price of properties and can change in a matter of months.
Getting up to speed on the state of the market will give you a better idea of what the property might realistically be worth in real-time. Vendor discounting and auction clearance rates give a good indication on which way the market is heading. Low discounting and high auction clearance rates indicate a high demand market, while high discounting and low auction clearance rates show a softer market.
Adjust for any value-adds / renovations
Another factor to consider is the accessories and upgrades that you’ve added to the property while you’ve been living there.
Examples include extra bedrooms added, kitchen and bathroom renovations, landscaping, and so on.
This is a fairly inexact science, and most people tend to overestimate the amount of value these add, so be conservative with your estimates. It’s important to note that add-ons and other upgrades very rarely correlate neatly with the amount you spent on them.
Adjust for the age and current condition of your property
Of course, the age and condition of any property will play a part in the price you’re able to ask for. Older houses tend to be less desirable when compared to their fresh-faced peers, however, once they pass the ‘middle age’ stage and become heritage or character homes and start increasing in value again.
Evaluating the condition of your home includes reviewing everything from the quality of the fixtures to the freshness of the paintwork.
As a side note: while the condition and age of the house do matter, they don’t matter as much as the location. Even very run-down houses in good areas will go for more than perfect houses in average areas. In fact, almost nothing trumps the weight that location has when it comes to pricing a home.
Look at housing market predictions
While predictions are just that: predictions, they can give you a sense of where the market is headed and what the general buyer feeling is. Are buyers likely to be in a positive state of mind, or do the predictions have them feeling a bit jittery?
The property predictions or forecasts given by industry professionals and influencers can impact the general buyers’ sentiment quite significantly. This buyer sentiment is also influenced by general media discussion on the state of the economy, interest rates and politics.
Valuation is a complex task
There are a host of other variables to consider in valuations including construction type, aspect, slope, views, natural light, floor plan layout, total landscaped areas, street appeal, parking, encumbrances, restrictions and highest and best use of the land. It’s important to take into account many of these additional factors to obtain a clear opinion on value.
Completing an accurate property valuation is a complex task, but it’s worthwhile doing the research to educate yourself if you’re considering buying or selling a property. After all buying a property is usually the most expensive purchase you are going to make in your lifetime.
Not only can you empower yourself with the knowledge you need to make an accurate prediction, but this knowledge will also help you when it comes to price negotiation and investing wisely.
