How to Value a Property in a Hot Market

12th Aug, 2021 | Investor

In this article:
With most properties being sold in auctions, paying for professional valuation for every potential purchase may be too expensive. Here are some effective tips on finding the value of a prospective property in a booming market.

As the property market becomes a seller’s one, a more significant percentage of sales are happening through auctions. Most prospective buyers are likely to attend a few auctions before winning a bid. This is where an issue with property valuations arises. With a private treaty purchase, prospective buyers can hire a professional for an appraisal. However, in the case of auctions, this may not be a very cost-effective approach. Here’s our take on how to go about finding the value of a property cost-effectively.

#1 Suburb Profile

  • Distance from CBD: The closer a suburb is to the CBD (Central Business District), the higher its property prices will be. Since the density of jobs is usually the highest at a city’s CBD, the suburbs closest to it have a commute advantage.
  • Facilities: These include Shopping avenues, eateries, healthcare options, Good school catchment areas. While it is rare to find a suburb that has provides all these facilities, the higher the number, the higher the value of its properties.
  • Crime Rate: Despite all benefits or facilities in a suburb, a high crime rate puts a spanner in the works and has a very adverse impact on property value.
  • Connectivity: A suburb with good connectivity and ease of travel in the form of motorways, train stations, bus service will attract a premium.
  • Resident demographics: High net worth and high-income households tend to live in the suburbs with higher property values. On the other hand, blue-collared areas have lower values.
  • Green Cover & Parks: Accessibility to a good number of open spaces will contribute positively towards property value.

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#2 Land

  • Size: The larger the land size, the higher the property’s value. While there is a growing trend of newer and more modern properties on smaller plots of land, the land being a finite resource contributes greatly to property value.
  • Shape: Odd-shaped plots – triangles, trapeziums etc., are likely to have a lower price than regular-shaped plots.
  • Ease of construction: If the plot of land the property sits on is too slanting or very rocky or has specific attributes that may make construction on it difficult, its price is likely to be lower than other options that don’t face these concerns.
  • Plot location on the street: Corner plots on account of better ventilation and light usually attract a premium. 
  • Distance from closest transport: Proximity to public transport like train stations and bus stops positively impacts property value.

#3 Property Construction Condition

  • Street appeal: The exterior of the property in terms of aesthetics, especially compared to other properties on the street, is a major contributing factor.
  • Layout Design: Consider aspects like the number of rooms, room size, ventilation, flooring, windows fittings, lighting, paint condition and plumbing.
  • Bathroom and Kitchen: Look at the overall shape and fittings
  • Additional facilities: Some examples include a covered deck, an entertainment area, a Rumpus, workshop, pool etc.
  • Level of renovation needed- A very rundown property is likely to go at a lower price.

#4 Historical Sales and Returns Data

  • Prices of recently sold similar properties: Compare apples with apples or, in other words, properties that are similar in land and construction size as well as facilities. For example, all things equal, a house with a pool will have a higher price than a house without a pool.
  • Auction discount and clearance rate: This will give you an idea of how easy it is for a property to get sold, how long they stay on the market, and how much above or below the reserve price they sell at.
  • Sales history of the property: Frequent sale of the property may be indicative of some significant issue.
  • Rental Yield: Good rental income properties have higher prices
  • Capital growth: Properties with good appreciation history usually have a higher value.

#5 Property Valuation sites 

  • Avoid being influenced by media hype: The media loves sensationalising property boom stories and case studies of individuals who’ve made a fortune in quick property sales. Take all extreme examples with a pinch of salt. Also, remember that such stories are an exception and not the norm. Don’t get pressured into making a hasty decision that may leave you financially worse in the long run.
  • Look at valuation sites: Several online valuation sites can give you a reasonable estimate of property value, rental yield, capital growth and sales in that suburb. While the free version usually provides an approximation, upgrading to the premium version for a small amount will provide you with more precise figures.

#6 Your Mortgage Broker

You can also rely on your mortgage broker to guide you on the value of a property you are looking to buy. Your broker will work with you to get your home loan approved. Lenders usually approve a loan based on the value of the property. So if there’s a mismatch between your perceived property value and your loan amount, your loan is unlikely to get sanctioned. Most brokers have access to professional property valuation sites and can therefore provide you with relevant data. In addition to scoping the market for the right home loan product, your broker will also manage all your loan paperwork. What’s more, is that brokers are usually paid by lenders upon the settlement of a loan and their services are generally free for borrowers.

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