How do you know what a property is worth?
When sellers ask me “What’s my property worth?”, I normally reply “It’s worth what a buyer is prepared to pay”.
I don’t say this to avoid answering the question, I say it because it’s true. Properties are worth different amounts to different people, and our job as real estate agents is to find the buyer that’s prepared to pay the best possible price for a property in the prevailing market conditions.
In my experience properties have three prices:
- Rational Price – what similarly sized/type & age of build/appointed properties on similarly sized blocks of land have recently sold for (data should be no more than a few months old to be relevant)
- Bargain Price – what a property tends to sell for if it has hit the market at too high a price and gone stale, or sold by an inexperienced or out of area agent with poor negotiation skills or lack of local knowledge
- Premium Price – what an emotionally engaged buyer that falls in love with a property and/or is competing with other buyers might pay for it
How buyers decide what a property is worth
It often surprises sellers to know that buyers are very price savvy.
In most instances buyers will:
- google the properties they come to see
- know the price a seller paid for it and have seen the photos from when it was last bought
- know what similar homes in the suburb have sold for (they can now buy reports) and have probably seen them
- have been going to home opens for months (sometimes years) to get a feel for the market before they buy
- have been given an online valuation report by their broker as to what the property is likely to be worth
- have used an online valuation tool themselves to work out what the property might be worth
Needless to say, your buyer is likely arriving at your home open having already worked out what they think your property is worth and determined not to over pay for it, so your agent needs to be price savvy and on their toes!
How sellers decide what their property is worth
As a seller, it can be tempting to arrive at a price for your property through the following:
- adding together the purchase price, stamp duty, cost of any improvements you made, the selling feel you’ll pay and your marketing expenses
- working out the difference between the price of the new property you want to buy less the amount of additional money you can afford (or want) to borrow (i.e. a changeover price)
- the opposite of the above if downsizing (i.e. how much you want to reduce your mortgage by)
- basing it on the asking price of the property that’s just gone up for sale down the road
- factoring in additional value for aspects of the property that have specific emotional pull or appeal for you but not other buyers (I once had a lovely old man tell me that I just didn’t appreciate how much concrete had gone into building his home!)
As an agent I accept and understand that the sale of a home is an emotional transaction that can also have significant financial impacts. I also know that pricing your home based on emotions or factors that don’t reflect the realities of the market you’re in can have significant repercussions for the sale price you eventually achieve.
How agents calculate what a property might be worth
In WA, when real estate agents provide an opinion as to the current market value of a property they are required to support that opinion with reasons as well as information regarding the sale of similar properties.
Information that’s relevant to market value includes (and this list is by no means exhaustive!):
- suburb & street
- beds/baths/living spaces
- proximity to amenities
- school zones
- land size, zoning & subdivision potential
- access – i.e. having a rear right of way
- heritage provisions and restrictions
- easements and covenants
- type of title (green, survey strata, built strata)
- age & style of the property
- quality and recency of improvements
- heating & cooling
- level of maintenance and presentation
- quality and type of building materials used
- location of sewer and power lines
- level of likely buyer demand and appeal
- surrounding properties
And of course, recent relevant sales and current market conditions. An experienced local agent will factor in all of these aspects and be able to provide supporting evidence and a clear explanation of their opinion on price to you.
Don’t believe everything you hear
It’s important when you ask an agent to appraise your property that you are open to and interrogate what she or he has to say and not just listen for what you want to hear.
As an agent I am hoping to win your business and sell your home, for which I’m paid a commission. Remember that it can tempting for less scrupulous agents to give you an unrealistic price opinion on your property so that you to choose to sell with them instead. Once that agent wins your business, they’ll start to try and reduce the price of the property in the hope that they eventually get it down to a level that buyers will see value. This is what we in the industry call “buying a listing”.
I’ve lost many listings over the years to agents that have promised a high price to a seller only to see the seller go through what I call the discount game of death by a thousand price cuts and eventually sell for a lot less than it would have (i.e. the bargain price) had it hit the market with a realistic marketing price in the first place.
What a property might be worth, and what we might sell it for, are two different things…
Remember that I said that properties have three different prices? When it comes to selling, I view the marketing price (what I call the rational price) and the selling price as two different things. Agents may also recommend to a seller a no price strategy, such as an Auction or EOI campaign, if they think it’s going to get them the best result. Ultimately, it’s not the promise of a price, but the process the agent follows and the skills that they utilise, that’s going to deliver the best possible price outcome.
So what’s your property worth? Simply put, it’s worth the most that a great agent (and skilled negotiator) can get the best buyer to pay! How do they do that? Now that’s the question you should be asking!
To discuss how we go about helping you get the best possible price for your property, call or sms Natalie now on 0405 812 273.