This article will provide you with a quick, easy home valuation process to help you decide what any property is worth to you.
Step 1. Consult online home valuation websites.
Start by finding out what the online value estimators have to say. Their algorithms are getting better and better all the time. Take each number with a grain of salt though, as there will be factors these formulas can’t take into account. Including…
- The condition of the property. Is it average for the area? Below average? Or renovated within an inch of its life?
- Are there any major works required? Like re-piling, re-wiring, or re-roofing?
- How convenient is the layout of the home. Is it light and spacious? Or dark and disjointed?
Step 2. Find out what the property last sold for.
You might be able to find this information by searching online. Otherwise, ask the real estate agent selling the home to send you the sales history for the property.
If a home has sold in the last 1-3 years it can help you to ascertain what it might be worth now – by adding an estimated amount of capital growth during that time.
Step 3. What improvements have been made?
Does the home have a brand new kitchen? Plush new carpet? Is the quality better than average for the area? These updates will add value.
Conversely, if a home needs updating that might lower the price compared to others in the area. Just don’t expect to deduct the full cost of the renovations.
Often, a buyer will come through a dated home and say “It’s a bit tired, it needs a new kitchen, a new bathroom, new carpet. So we’ll take $100k off the price and offer X”. Real estate values simply don’t work like that though. As long as the current kitchen and bathroom are working, they have residual value.
If the current owner spent $100k on those same renovations, the home would be worth a heck of a lot more.
That’s why you can’t expect to subtract your entire ‘future renovation cost’ when determining market value.
Step 4. Look at the current rent (or rental appraisal).
What sort of yield would this property achieve if it was rented out?
If the rental appraisal is $500 per week and you think the property might sell around $600k, that’s a 4.3% yield
Yield formula: $500 (rent per week) x 52 (weeks per year) /$600k (purchase price) x 100 = 4.3%
This information is not just for investors. Similar properties in the same area should sell with similar yields. Look at the numbers and ask, how does this yield compare to other properties on the market? How does it compare to other properties that have sold recently? Will the rent cover the mortgage interest if you need to travel overseas or suddenly need to move to a different city for work?
Step 5. Look at comparable sales.
Comparing a property with recent similar sales is still the best way to work out market value. Ask the agent you are working with for a list of similar homes that have sold in the last 6 months. The more recent, the better.
Have you seen those other houses? Can you drive past them, or at least lookup photos online? How do they compare with the property you are looking at? Consider differences in land area, floor area and location, too. Not just condition.
Now you can decide on a price range…
Remember – there is no one price for any home. Every property is worth different amounts to different people, depending on their needs, motivations and financial situation. With any property you are considering, start by deciding on a value range (eg. $600 – 650k) and then determine your ‘walk-away price’, which is the maximum amount you are willing to pay in a competitive situation.
Now you are ready to make your offer.
Do you need to sell your current home first?
The market has moved a lot over the past 12 months, so it’s important you have accurate, up-to-date guidance. We can give you an approximate sale price estimate and also provide tips on where you might be able to add value to your home with minimal expense before going to market.
Call us today to book your free appraisal.