How much is that property really worth?

If you’re looking to buy your next home or investment property, or even if you’re considering selling your property, a question you would be asking yourself is, “How much is this property really worth?”

Who do you ask to find out? The selling agent? A valuer? A buyers’ agent? Maybe the bank? Or do you buy one of those online reports from the property data providers?

It probably won’t come as a surprise that they are all likely to come up with different “values”.

You may have heard of the concept of “fair market value” in property, which is defined as “the price a buyer will pay and a seller will accept given that neither the buyer nor the seller is under pressure to close the deal.”

Pressure, or motivation, comes from life changes such as divorce, a sudden job transfer, difficulty meeting mortgage repayments or a death in the family, and these things compel either the buyer or seller to act quickly.

Now, when we’re talking fair market value, let’s get one thing clear – it may not always be “fair” to you.

It may not be what you call “equitable” because fair market value is impartial, it takes no sides and it doesn’t care about what you need or what you want. As a buyer you want to buy the property at the best price possible and as a seller you want to achieve the highest price for your home.

So back to my original question – who do you ask for advice?

The real estate agent

If you ask the selling agent what the property you’re considering buying is worth, he is obliged to work for his client – the seller. While he can give you details of comparable sales and an indication of interest in the property from other potential buyers, the selling agent should be trying to maximise the sale price for his vendor.

A valuer

You could pay $400 or so and get an independent professional valuation, but you’d probably be disappointed.

I’ve found that a formal valuation is of limited benefit in setting a realistic market price to purchase a property and will generally be low when choosing the asking price when selling your home. It’s just another figure to add to the mix of possible prices.

Call me cynical, but the current market when property values are flat or falling and with their professional indemnity insurance getting more expensive coupled with the little they are paid to conduct a valuation, I’ve found valuers come down on the conservative side.

The bank

When you apply for a loan for your new property the bank will determine it’s value, but again this may not accurately reflect the property’s market price.

Banks tend to value properties at a figure that will reflect what the can reasonably expect to recoup if they take possession and on-sell your property if you default on your loan repayments. They either use their own staff or an outside firm of valuers, but these are often driven by valuations without even looking inside the property.

An online report

A number of property data and research companies provide reports you can buy online to estimate the value of a property.

What’s the catch? I’ve found that they can be 10-20% out on the real price of a property. They can be wrong either way – estimating the property is worth considerably more or less than its value.

Think about it – they don’t know if the property has had an air conditioner installed or whether it has threadbare carpets or recently polished floor boards. They don’t know whether the property has been recently renovated or is in original condition.

In my view, I wouldn’t bother with this type of report.

A buyers’ agent

A buyers’ agent could be a good source of independent and unbiased property price advice.

A buyers’ agent is a licenced estate agent, but the opposite to a selling agent, because they work for and are paid by the buyer.

If you choose one that works in the geographic patch you are considering, they should have an intimate knowledge of the property market, what is selling and what isn’t and the prices that properties are selling for.

More and more investors and home owners are now using buyers’ agents to level the playing field when they are looking for their next property purchase. Not only will they assist with background research and pricing, but you can use their negotiating skills to help you obtain the best price.

To be successful in today’s flat property markets thorough research and astute property selection is important, as is buying at the right price. Investors can’t count on the rising tide of property prices to cover up their buying mistakes.

If you are not able to or don’t have the time to do this research yourself, then you need to get a good team on your side to help in your next property purchase or sale.

Michael Yardney is the director of Metropole Property Investment Strategists, a best-selling author and one of Australia’s leading experts in wealth creation through property. For more information about Michael visit www.metropole.com.au and www.PropertyUpdate.com.au.