How to value property during the crisis - April 2020

By Rich Harvey, CEO & Founder, propertybuyer.com.au

From open home restrictions to finance hurdles, there’s been little left untouched by the coronavirus crisis. We’ve needed to adapt quickly to ensure everyone is safe, all while keeping the economy alive.

Of course, one of the most challenging tasks is determining property prices. When your job is purchasing real estate for clients at fair value and on reasonable terms, fast moving markets make the task of assessing an appropriate first offer extremely challenging.

So, given the uncertain state of play, how do we define what clients should be paying for a property?

The fundamentals of assessment

For starters, while the property world feels quite a bit different now as compared to December last year, there are some constants we can hang our hat on.

One of those is the foundational method for assessing property value.

The traditional, and primary, approach will always be comparable sales evidence. Keeping abreast of local markets and knowing the details around property transactions is the best gauge of how a market is tracking. It tells you as a buyer what people are willing to pay for certain types of characteristics.

Most buyers have a reasonable idea of the location they intend to purchase in, so monitoring sales should become a habit. Gather as much information about those property deals as you can, so you understand value levels in your suburb.

When you do unearth a buying opportunity, it’s time to start applying the process.

Firstly – get to know you subject property as best you can. Once you’ve managed to do all necessary due diligence and conducted an as-comprehensive-as-possible inspection of the property, you should have enough information to begin the valuation process.

Now, it takes experience and skill to properly compare your property to the sales. There’s plenty to be taken into account from physical characteristics like land size and construction type, through to locational factors such as distance to local café’s and schools.

Other elements include aspect and outlook, home configuration and neighbouring property uses just to name a few.

By having a comprehensive list of sales and being able to weigh up the pros and cons against your property of interest, you can begin to form an opinion as to what a reasonable price might be.

The COVID allowance

While I’ve now set out a basic plan for assessing value, in truth the current crisis amplifies one of the more difficult price- influencers to allow for.

That element is current market direction.

You see, when I’m buying a property based on completed sales evidence, I’m forming an opinion as to the property’s value as at the time those comparable sales occurred. But I am, of course, actually looking to buy that property under today’s market conditions – not yesterday’s.

As the coronavirus crisis has revealed, market circumstances can change fast and it’s this speed that complicates things.

You can imagine the complexity. Here I am with historic sales evidence trying to determine value while allowing for the market’s outlook – and as many experts will tell you, current projections are full of uncertainty.

So here’s what I do to account for that.

Use the range

The secret in assessing value is realising that coming in at the exact dollar every time is near impossible. Even professional valuers will tell you, when they use comparable evidence, they’ll invariably come up with a value range that might vary 10 to 15 per cent from bottom figure to top.  When my team is preparing appraisals, we ensure we are within a 3% to 5% range and have found that our accuracy is what sets us apart from other buyers’ agents.

With this in mind, if I know I’m making an offer in an uncertain market, I might adopt an opening figure well below that bottom number. This gives me plenty of room to gauge the eagerness of the seller and their interpretation of whether their market is softening.

Of course, the converse applies when markets are running hot – but that blog will probably be some months away.

In the end though the best approach when looking to purchase is to have an expert on hand. Not only will they be aware of the most appropriate comparable evidence for determining an accurate assessment of your property, they’ll also be experienced in negotiating the most favourable outcome.

In times of uncertainty such as these, don’t leave you purchasing decisions to chance. Use a qualified buyers' agents and ensure you strike the right deal for the market you’re in.

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