By Rich Harvey, CEO & Founder, propertybuyer.com.au
Among all the challenging decisions around purchasing a property, determining how much to offer ranks among the most stressful.
In real estate you are investing hundreds of thousands of dollars. If you’re wrong in your assessment of what is a reasonable offer by even a few per cent, that can be tens of thousands you overpay.
When it comes to determining value and your offer price there are a few options, but not all are great choices.
Here are five ways to assess value and offer price, and which are the most reliable.
Certified property valuation
A report prepared by a certified property valuer is widely regarded as the benchmark assessment of an asset’s market value.
If you engage a certified property valuer to carry out a valuation, they must do so under established guidelines and definitions, and they are legally liable for the opinions they deliver.
Valuers have tertiary-level qualifications in property and are normally members of professional associations that require ongoing training, and compliance to a code of conduct.
So, you can be certain the advice you receive from a valuer is professional level.
On the downside, valuation advice can be expensive. Reports range in price from a few hundred dollars to a few thousands, depending on their complexity and the end value of the property they’re assessing.
Also, you must be very specific about what type of advice you need from the valuer. They mostly deal with valuations for lending purposes. Be certain they know yours is for purchasing advice as they will change their commentary.
Also, while many work in specific locations, not all do. Make sure you check they know their market well.
A certified valuation is a reasonable choice if the home is particularly unusual, or there’s limited sales evidence available. They’re also useful when it’s a commercial property where lease analysis is required.
Buyers’ advocate appraisal
An assessment that a specialist buyers’ advocate conducts will deliver honest, up-front information designed to achieve the best possible outcome for you, the client.
When you engage a buyers’ advocate to acquire real estate on your behalf, a market assessment will be part of the service. My Propertybuyer team spend hours combing through comparable sales evidence and selecting the best possible transactions to help determine the value of any properties of interest.
There’s plenty of upside in using this service. A buyers’ advocate is an expert in their sector and location. Their agenda is to look after you – no one else – and their assessments are incredibly accurate because they’re working daily in the field of purchasing real estate. That means their knowledge of the market remains constantly up to date.
Also, a buyers’ advocate will understand the variations and considerations needed to weight comparable sales appropriately. They can provide unemotional analysis, with the advantage of being skilled in negotiation as well.
Selling Agent’s appraisal
Real estate agents are well versed at pricing property. They know what sales have occurred in their speciality areas and whether comparables are ‘arm’s length’ or included special conditions.
Agents are experienced in pricing too, as they help sellers set a price when listing. In addition, and agent’s opinion costs nothing … but there is one obvious word of caution about relying on an agent’s opinion of value.
They’re representing their seller’s interests. They are not beholding to you as a buyer. As such, while an agent’s opinion may well be valid, you should be very cautious. Their process of negotiating the best possible price for the seller starts as soon as you contact them expressing interest.
While you might be able to source very up-to-date sales evidence from the agent, it's best to use a buyers’ advocate or property valuer if you want to be certain.
Self-appraisal
Of course, you can always determine value yourself.
The tools for assessing value are readily available. You need to gather other sales that are like the property you are appraising. The sales need to be recent and in the same location and position. They should offer similar accommodation and be of about the same age.
You can also gather intel by attending auctions and going to open homes to check on pricing.
The downsides to self-assessment are substantial, however. Firstly, this is a time-consuming process. Gathering information, inspection homes and attending auctions can become exhausting to do in your ‘free time.’
Also, you won’t have the same experience in applying comparisons as a seasoned professional who does this sort of work every day. Experience teaches property specialists about the nuances of the comparison and appraisal process.
Finally, assessing a property you have an emotional attachment too is surprisingly difficult. You just won’t be able to disassociate yourself from the home and look at things with a clear head.
Automated appraisal
I’ll cut straight to the chase – automated appraisals are the worst guide if you’re seriously looking to make an offer on a home.
These algorithmically based appraisals use averages and machine-based learning. They see nothing of a property’s nuances, and don’t account for renovations or updates to comparable sales. They often deliver a range that can be wildly inaccurate.
In short – they’re a fun tool to play with but are rarely a true reflection of value and treating them as gospel could penalise you financially.
Making an offer on a property is important and basing it on an inaccurate assessment of value will result in a costly error. In most instances, relying on a professional like a buyers’ advocate who works daily in the field and has your best interests at heart will deliver the best possible outcome.
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