There are two questions I often get asked by people just before they rush off to an auction or negotiations. The first one is:
1. “Hey, we’re about to put an offer in…What’s this worth?”
This is usually followed by, “don’t spend too much time on it, just a quick glance would be great.”
The other questions is:
2. “Should I get a building inspection?”
This week, I want to take you through the first question and what “a quick glance” or “just running your eyes over it” can cost you….
What’s it worth?
The pricing assessment we use considers the following:
-the results of up to six comparable sales;
-an in-depth discussion from at least two of the team; and
-approval of the assessment at the director level.
All up, this is around 3-5 hours’ worth of careful consideration and research per property.
When pricing a property, there are many variables that need to be considered, the very basics of which are:
-age of property; and
-other characteristics that make the property unique.
Naturally, other aspects like views, elevation, slope of the land, additional features like pools or roof top terraces can also have an impact.
What often clouds judgment is your own ‘confirmation bias’. This is the way our brain tricks us by searching for and weighting the reasons that confirm what we want to believe. We naturally feel our possessions, including our home, are worth more than an unfavourable – but in most cases accurate – valuation. We then apply this same logic to our future home or investment. However, what is of personal value to you may not be of any value to the market.
On the other side of the scale, our confirmation bias also means that sometimes we underestimate what a property is worth, especially when we are discouraged or disengaged with it. This tends to happen when considering properties in those ‘unsexy’ suburbs; we miss key features that mean we price it short and waste time, emotional and physical energy walking away with nothing on the day except a missed opportunity.
So, what are your options?
The ‘go-to’ solution for most punters is our friend, the internet. If you’ve ever googled “Online property valuation” you’ll get no less than 12million results. These tools are sometimes so far off the mark it’s scary. Sure, they’re great for a quick snapshot, but the price range is often so broad it provides hardly any indication of how much money you’ll need to make bid, let alone a purchase.
Here’s an example:
A property we recently targeted in Geelong was listed on the most prominent online valuation site with a range of $369,000 – $500,000. That’s a range of $130,000 or 26 per cent! It ended up selling at the top of that range – too bad for all those who thought they had a chance at the $420k mark.
Another alternative is to take the agent’s advice. Just saying that makes me nervous but with standards – that were previously very poor and often abused – improving in Victoria since May 2017 when new underquoting laws were introduced, you’re better off now than you were before.
Just remember, even with better standards, the agents are incredibly smooth and they work for the seller, not you. You need someone on your team.
Or, you can always value it yourself by engaging a valuer. They are guns at what they do and will give you much more accurate advice than an agent. The report they provide will get you half way. You still need to execute a plan which involves much more than a number.
The banks are changing their parameters all the time. Pre-approvals do not guarantee home or investment loan financing and a low valuation and not getting approved could mean you lose your deposit.
But more to the point, who wants to pay more than what the property is worth? And if you are not 100 per cent clear on the value of your potential investment, how will you behave if it passes in and your FOMO gets the better of you, egged on by the agent eye balling you asking for just another $10k and 30 to 40 sets of eyes staring at you, waiting for your next move.
Do your homework, have a game plan or take the stress out of the equation by outsourcing the inspection, pricing assessment, bidding and negotiations to your buyer’s agent so you can gain clarity, a clear pricing appraisal and buying strategy.
We’ll explore the second question, “Should I get a building inspection?” in the next post.