Ask Kevin: A Property Is Worth What A Buyer Is Willing To Pay
KEVIN LAMPEN-SMITH | November 10 2017
The method you choose to sell your house could affect the price you get.
We are hoping to sell our home over the summer and are just doing some tidying up before we start talking to real estate agents. If the housing market is slowing down, how do we know what our property is worth?
Every seller wants a buyer who falls in love with the property they're selling and will pay far in excess of what it's truly worth. This can happen to some lucky people, but it's not something I'd recommend betting on.
There are several methods you can use to gauge the worth of your property.
Remember that the rateable value (formerly known as the government valuation, or GV) of your property doesn't really provide any clues. These valuations are done by the local council to work out what share of rates a household should pay.
They are only done every three years and don't take any improvements into account – increasingly, properties that include a rateable value figure in the advertising will come with a disclaimer that it is not indicative of current market value.
Kevin Lampen-Smith: 'Even with all the information you can gather, the true indication of your property's value is what a willing buyer will pay for it at the given time that it's on the market.'
These days you can gather a lot of information free thanks to websites like Trade Me and Homes.co.nz.
Trade Me's Property Insights has information on more than 1.5 million homes, including rateable value data, previous sale prices, when the property was built and what size it is. The site also provides an estimated value range, based on a melting pot of data from sales of comparable properties, listing details and user activity.
Homes.co.nz operates similarly. Its estimate service is built on a complex set of valuation models, using around 30 million pieces of data bought from councils nationwide, plus sales values and a wide set of property features.
Both sites recognise there are a number of factors at play, so they offer an estimated value range that can be quite broad.
While both these sites are useful, they don't show the full picture and should only be used as the starting point in determining value. They can't take the condition of your property into account and they may not recognise any improvements you might have made (though homes.co.nz does allow owners to "claim" their property and edit information about it).
Let's say you own a large property in an area where there have been some big-ticket sales in the last year. Your property might have some serious structural issues and be in generally poor condition, yet the algorithms may claim that it is worth a lot more than any sensible buyer would pay for it because other houses in the neighbourhood have sold for high prices.
Are your price expectations realistic?
The impact of this is two-fold. Firstly, the seller could anticipate a big pay-day that may never arrive; and secondly, some buyers may be put off making an offer because they think it's out of range.
There are a couple of ways to combat this. When you start work with a real estate agent to sell your property they must supply you with a current market appraisal or CMA. This is based on similar information to the online versions, but it also comes with the agent's realtime, real-life knowledge of the area, what similar properties have sold for and the condition and particular characteristics of your own property (such as whether it has been repainted recently or it's in a state of disrepair).
The agent will have had the chance to walk through your property and identify its unique selling propositions, such as good sun, proximity to desirable schools and other features that buyers like. It's important to note that you may get varying CMA ranges from different real estate agents as they may each take a divergent perspective on your property that you will then need to consider.
Your other option is to pay a registered valuer to provide you with an independent valuation.
This service comes at a cost (the price will vary, depending on the level of detail), but it will be more accurate. The Property Institute, which represents valuers, says a registered valuation can help sellers be a little more clinical about their property's worth.
Even with all the information you can gather, the true indication of your property's value is what a willing buyer will pay for it at the given time that it's on the market. A valuation, a price range or a figure reached by an algorithm is not cash in the bank. It's worth remembering, too, that how you choose to sell the property (by auction, tender or advertised price, for example) will have an impact on the ultimate price offered by a buyer.
When you're considering which real estate agent to work with, ask them what sales method they suggest and ask them why they recommend it. We can look at that in more depth in a future column.
Kevin Lampen-Smith is the chief executive of the Real Estate Agents Authority (REAA), the independent government agency that regulates the New Zealand real estate industry. If you have a question about buying or selling property, send it to firstname.lastname@example.org For independent advice on buying or selling property, check out www.reaa.govt.nz.Download full article