Property Valuation
The Time Has Come To Buy A Home…
And with it, the time to decide what you’re willing to pay for that home. To that end, you’ll need to know how to accurately assess the estimated value of your home, so that you know what you should offer, and what you’re willing to pay for it. You will want to be able to accurately estimate real estate value when you do decide to buy a house, so this guide is written with that in mind.
So, how does one accurately work out the rough property value of a home or property they’d like to make an offer on? Housing values change rapidly, so it’s good to know where to start and how to do your research.
This article is designed as a guide only. Before you purchase your home, you should ALWAYS pay for a proper home valuation by a trained and knowledgeable professional.
What Is “Market Value”?
One of the first terms you’re going to come across when researching real estate value is “market value”. The market value of a home has nothing to do with the lost sale price, the most recent offer or the current listing price. Instead, the market value is the price that would likely be negotiated in a face to face negotiation between a buyer and seller, after proper marketing.
Comparing Local Sales
The most popular method for determining the estimated property value of a certain piece of property is to compare it to other similar properties which have sold nearby. Here are the guidelines you should use for comparison. The properties used are:
- located within roughly 1 kilometer of the property that you are considering, expand this area in country regions.
- recently sold – as in, the last six months.
- similar to your property – size, rooms, amenities, etc.
One way to find these sold properties is by asking your agent or your mortgage broker. Often, they can provide these lists for free. Another way is to check the sold section of your local real estate websites. Search for results in the area that you are looking for, and sort them by most recently sold.
Comparable Properties
You will need to look closely at the properties you intend to compare. Check to see if they have the following:
- Location – Are the properties located about the same distance from the amenities you will be enjoying? Do the streets look about the same?
- Is the size of the land and living area of the home pretty close on both properties?
- Does the property that you’re comparing include the same amount of bedrooms, bathrooms, and the same car space?
- Are both of the properties you are comparing in the same shape and the same quality building?
To properly estimate your real estate value using this method, you must compare properties which are very similar. Otherwise, your estimate could be wildly off from the actual property valuation.
Defining Your Range
After you’ve gathered a list of similar properties – usually around 3 to 5 – try to decide which ones are better than the property that you’re looking at, and which are inferior. If you can’t manage to do this because you’re too attached to your property, have a friend pick the ones they think are better. The values of the houses will help you to determine the fair range for your property.
Adjust For Market Fluctuation
Because the market changes on a regular basis, you will need to make small adjustments taking into account if the market is better for buyers or sellers. By going to open homes and auctions in the area, you an get a good idea of how the market is in the area you’re looking at.
Mistakes Commonly Made During Estimates
If you do your research and you’re careful, you should come away from the above method with a pretty good idea of what you should expect to pay. Some people make mistakes that can cost them the property, or cause them to overpay on the property they’d like to buy. Those common mistakes are:
- Using properties currently on the market for comparison: Properties which are currently on the market do not make for good comparisons, as there is no set price for them yet. By comparing your property to this list price, you are probably estimating your property value too high and will probably end up paying too much for the home or property that you’re looking at. Remember to compare only to houses that have sold in the past 6 months or so.
- Letting your agents influence you: Your agent might tell you about other offers on the property or offers on other homes in the area. Ignore these. While they may be telling the truth, these offers are not selling prices yet and thus have no bearing on the market value of the home. While they may only have your best interests in mind, they can often cause you to make mistakes.
- Comparing apples to oranges: Remember to compare houses of equal size, lot size and amenities. If you choose houses to compare too with different sizes, rooms, and land sizes, you’re going to come away with a very bad idea of the price of the house that is either too high or too low.
- Attachment: The house you’re looking at has obviously caught your attention, and you may be getting emotionally attached to it. Ignore this when estimating your real estate value and look at it objectively. If you can’t, have a friend or family member do so. Your emotional attachment will influence what you personally believe the home is worth, not what the market would pay for it.
- Not understanding your market: To get an idea of the market, you should go to as many houses as you possibly can and get a feel for what sizes and floor plans are going for what prices. This will allow you a much better insight into the actual, market value of a home instead of what you’d think it might be worth. You will learn a lot about location and value and how they go hand in hand.
- New properties: You’ll find that people will pay a premium for brand new, never lived in homes. Compare your property to values of similar homes outside the complex to get an idea of the true value. Government incentives on new homes can often lead to a temporary inflation in demand, causing brand new properties to temporarily be worth more than they actually are and ultimately leading to a loss in value not long after the demand dies down.
These are just a few of the many guidelines you will need to follow to properly estimate your real estate value. If you keep these guidelines in mind when you’re out looking at your properties and trying to value them, you’ll likely come up with an excellent, close to correct estimate of the value of the property you are trying to buy. You won’t be spot on, but that’s okay because you’re not a professional. As stated earlier, PLEASE remember to always have your house or property professionally valuated before buying to insure that you’re paying the right amount for the property you’re interested in. Good luck, and happy hunting!
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