Properties Have More Than One Value, There’s a Range
Dilleen Property Group 2021
Have you ever wondered what the value range of a property is versus the property’s actual worth? When growing my property portfolio over the years, looking at the real value of properties, and looking at comparable sales of a property really shifted my mindset. In the beginning of my property investing journey, one of the concepts that I had a hard time understanding was the range to what a property is worth. I learnt that there is always a range in terms of what the property would sell for, and there is always a range in terms of what the property is actually worth.
The Inside Scoop
When I was younger, I briefly worked in real estate sales, so I got to see the inside scoop of how real estate agents listed properties online for sale, and how properties were sold off-market. During this period, I found that real estate agents don’t use platforms such as RP Data, or subscription-based platforms that describe the actual worth of the property, and where that property is in the market.
If a person needs to sell their property, and it's roughly worth $400,000, what usually happens is that the seller will first contact a local real estate agent within their area. They'll go somewhere like Ray White, or Raine & Horne, and they'll speak with a couple of agents who will ask them a few questions. From the get-go, the agent will ask what the time frame is to sell their property. What I’ve learnt over the years, is that this ultimately comes down to circumstances and timing.
I believe that time is money, so depending on how quickly that person needs to sell the property, will depend on the price it is listed at. If that person explains to the agent that they have 6 months to sell their property, that means that they're testing the market and they're trying to get premium dollar for that property. The agent could list the property within a price range. If that property is roughly $400,000, they might put in offers over $400,000, or $420,000, or even over $440,000. Essentially, it is up to their discretion and what they communicate with the seller. It is also up to what the owner agrees with based on the agents influence and market data.
On the Other Hand
On the other side of the equation, if a person needs to sell within 6 weeks, the agent for that property is going to recommend a different marketing strategy, or a different price point. Instead of the agent listing it for offers over $420,000, they might list it for offers over $380,000, and negotiate from there. This will often happen if there are circumstances such as the client is moving overseas, an urgent family circumstance, they need to access cash quickly, or they may be buying another property and they are relying on that cash to contribute to this new property they are interested in. At the end of the day, just because it is listed at a certain price on Realestate.com or Domain, doesn't mean that the property is worth more or less, so it really comes down to doing your own individual research and looking at comparable sales in my opinion.
Bank Valuations
Another factor relating to the value range of a property is bank valuations. If you go to 5 different banks, 90% of the time you will come back with 5 different bank valuations for the same property. These bank valuations can even vary by 5-20%. This essentially proves that there’s always a range to what a property is worth, and the timing of the market. I have seen property sell for $50,000 above what it is actually worth, however, I have also seen properties that are absolute bargains and get snapped up almost immediately. In my opinion, always do your own research, and don't just think that there's one value to a property. It will always depend on how quick the owner needs to sell, what the seller’s circumstances are, and who's selling the property.
Off-Market Properties
In my opinion 50-60% of properties don't ever make it onto Realestate.com or Domain. A lot of good properties get sold off-market. Over the years of property investing, I have built up a network of connections with real estate agents to purchase myself properties that are off-market, as well as clients of Dilleen Property Group. The benefits of why many clients choose to sell their property off-market, is because it’s cheaper. It costs money for the seller to put their property on Realestate.com or Domain. There are also costs associated with marketing and professional photos, which can add up very quickly depending on how long your property is on the market for.
What I really hope for is, that when you purchase your next investment property you know that there is always a range for what a property sells for, and that you can always buy the property on the lower side of the range or even the higher side of the range. Personally, I always want to buy properties below comparable sales. If I can see that next door sold for 15%-20% higher than the property that I am buying, then that is certainly an amazing deal.
Disclaimer: This is not intended as legal, financial, or investment advice and should not be construed or relied on as such. Before making any commitment of a legal or financial nature, you should seek advice from a qualified and registered legal practitioner or financial or investment adviser.
