If you’re interested in buying a new home, it’s useful to know how much it’s worth. Knowing how to work out a property’s value gives you an idea of how much you will spend and what kind of home your money can get you.
A property’s value will depend on many aspects such as the local area, uniqueness, size, features, finishings, and current state of the market. The best way to work out what a property is worth is to research the market and compare recent sales.
This is a step-by-step guide on how to calculate the value of a property.
In real estate, you often hear the terms market price and market value. Market price is how much a buyer is willing to pay for a property and what the seller is happy to accept for it. The market price of a property might be more or less than its market value.
Market value is how much a property is worth in the current marketplace. This is usually determined by a professional who considers a property’s features, size, demand, real estate market, and how much similar properties in the area have sold for.
In this guide, we will focus on how you can estimate a property’s market value.
Property valuation and real estate appraisal are two different ways to determine how much a property is worth.
A valuation is a formal process by an expert valuer. They thoroughly research a property’s location, condition, features and size and provide a valuation report. This report is a legal document that contains all the facts and information about the property. Lenders use valuation reports as a basis for valuing a property when assessing home loan applications.
An appraisal, on the other hand, has no legal significance and is a professional opinion given by a real estate agent. Agents use their experience and knowledge of the market to provide guidance on a property’s value.
The most common way to work out a property’s value is to research the market and compare recent sales.
This is a step-by-step process you can follow to end up with an accurate figure.
Start by looking at recent sales in the surrounding area of the property you’re trying to value. If the property is in a metropolitan area, make a list of recent sales within a 1km radius. If it’s in a rural area, extend the search range.
Only look at sales that have been made in the last few months. The more recent the sale, the more relevant and up to date the prices will be. The market shifts quickly, so avoid looking at sales more than six months ago as those prices may no longer be relevant.
When you’ve compiled a list of recent sales in the surrounding area, start refining it by focusing on properties similar to the one you’re trying to value. To end up with an accurate idea of how much your property is worth, you need to compare it with properties that are as similar as possible.
Consider the following aspects when comparing properties:
You should now have a refined list of properties similar to the one you’re trying to value. The next step is to compare each property and decide which is superior and inferior.
It’s important at this stage to be as realistic, objective and honest as possible. If you’re struggling at this step, ask a friend or family member to help you.
Throughout this process you can consider features like:
You should end up with an ordered list of properties with the best ones at the top. Knowing where your property sits on this list should give you a good idea of its worth.
The real estate market moves quickly, so your next step is to adjust this figure to the current market. Sales prices of homes you were comparing your property to may no longer be relevant, so consider the current state of the market and make small adjustments if necessary.
Go to open homes or auctions near the property and get a sense of current market demand and the popularity of the local area. You can also talk to an expert such as a mortgage broker who can inform you on the current state of real estate and house prices.
Knowing how to calculate how much a property is worth can be extremely useful when buying a new home. You’ll know how much you should be spending, what kind of home your money can get you, and you might even be able to negotiate a better deal on your dream home.
If you’re ready to buy a new home, speak with our team to start the process. We’ll work hard to find you a home loan with the lowest rates, fees, and repayments as possible and pair you with a lending specialist who can answer any questions you have on the way. We can also pre-approve you for a home loan so you know what your budget is for a new home.
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Bill has over 26 years of experience working in the finance industry. He has worked across a number of different businesses including Home Loans, Personal Loans, Collections and Insurances. Bill's passion is to utilise his knowledge and experience in the industry to assist clients in meeting their financial goals.
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