A common question posed to me by those looking to buy is “what is the asking price for this property” or “what are the owners looking for”. I realise that trying to come to a decision on what price to offer is one of the hardest, if not the hardest thing to do after deciding you have found “the one”.
As an agent we will use multiple methods of assessing value, to assist I have put together a basic checklist of only five of the methods that you may like to follow to help feel comfortable when pricing a property.
Look at comparable sales
Still the best way to figure out the value of any property. Get a list of similar homes that have sold in the last 6 months. The more recent, the better. The real estate salesperson should be able to provide you with this information, and it should have photos next to each property too.
Look at recent sales that sold around the price you think this home will go for (eg. $50 – 100k above or below). Have you seen those other homes? Can you drive past them? How do they compare with the property you are looking at? Consider differences in land area, floor area, location and condition.
Ask your favourite agent for a list of comparable sales in the suburb of interest organised from lowest to highest in price. Work your way through and decide how your property of interest compares to these. Or better yet chat to your agent as they may be able to give you some gems of advice.
The more open homes you visit during your buying process, the higher the chances you would have seen these other homes, which puts you in a superior position to accurately compare and judge value.
Consult online valuation websites and look at graphs of the suburb
If you need graphical representation of what is happening in a suburb just let me know. I can provide this to you in a short space of time.
Visit homes.co.nz, oneroof.co.nz and TradeMe’s property insights.
Find out what the computers think. Definitely take each number with a grain of salt though, seriously, as these are still guesstimates. There is much that wont be taken into consideration. Including:
The condition of the property. Is it average for the area? Below average? Renovated within an inch of its life?
Are there any major works required? Like re-piling, re-wiring, or re-roofing?
What kind of cladding does it have?
The layout, eg. is is a rabbit-warren, full of tiny rooms. Is it light and spacious? What is the flow like? What’s the ‘energy’ of the home?
Potentially topography – there may be a decent tract of land but is it useable?
Does the property have a low RV? I could be wrong but it seems one of the main criteria used for assessing price by online valuation websites is RV. If the property hasn’t been sold for some time etc the RV may definitely be a little out of whack which may impact on the online value.
Find out what the property last sold for
Ask the real estate agent selling the home to send you the sales history for the property. This information is usually readily available on websites like homes.co.nz also.
This can often provide insights. If the home has sold multiple times over a short period it may be indicative of a property that isn’t the most fun to live in. Most of the time though, if a home has only just sold a year or two earlier it usually means the owners had a change in circumstances (like a new job, kids on the way, or a lifestyle change) that required a sale. If a home has sold in the last 1-3 years it can help you to ascertain what it might be worth now – by adding an estimated amount of capital growth during that time.
What improvements have been made?
What improvements are still needed?
Does the home have a brand new kitchen? Plush new carpet? Is the quality better than average for the area? These updates will add value.
Conversely, if a home needs updating you might pick it up slightly cheaper too. Just don’t expect to deduct the full cost of the renovations.
I used to see this happen all the time, a buyer would come through a dated home and say “It’s a bit tired, it needs a new kitchen, a new bathroom, new carpet. So we’ll take $100k off the price and offer X”. It simply doesn’t work like that though. As long as the current kitchen and bathroom are working, they have residual value. If the current owner spent that $100k on those renovations, the home valuation would be a heck of a lot higher.
So you can’t expect to subtract your entire ‘future renovation cost’ off the property value. Don’t go overboard or you won’t have a chance of getting your offer accepted.
Look at the current rent (or rental appraisal).
What is the yield? If the rental appraisal is $500 per week and you think the property might sell around $600k, that’s a 4.3% yield
Formula: $500 (rent per week) x 52 (weeks per year) /$600k (purchase price) x 100 = 4.3%
This information is not just for investors. Similar properties in the same area should sell with similar yields. Look at the numbers and ask, how does this yield compare to other properties on the market? How does it compare to other properties that have sold recently? Will the rent cover the mortgage interest if you need to travel overseas or move to a different City suddenly for work commitments?
I haven’t added this is as one of my five but you may also like to ask your agent what on average properties are selling for above RV for the last few months in your suburb. This may not only give you a starting point and decide on where you think your property of interest stacks up compared to that average but it may tease out of the agent where he/she thinks the property you are interested in may stack up in comparison to RV. This is always rough but can give you a basic idea of what has been happening out there in the marketplace.
So now to decide on the price. Once you have seen a few (or even offered on a few) properties it will become a lot easier to use your gut instinct. Instinct counts for a lot I believe. Happy house hunting – remember, I am only a phone call or email away.
