Here’s a game you can play, if you’re in the market for a property. A bit like closest to the pin. Estimate what you think a particular property to be auctioned might be worth. Wait for it to sell and see how near, or far off, the mark you are. Play this also without asking selling agents what they’re quoting. Their job, after all, is to get the best price for the vendor.

Of course, for those looking to buy a house or an apartment, working out its value is more akin to blood sport than amusement. Particularly when, as Domain Group senior economist Andrew Wilson says, “there is no true value”. Or as Nelson Alexander agent Arch Staver puts it: “The value is marginally more than what someone else is prepared to pay.”

That’s because prices constantly shift with fluctuating market conditions, seasonal influences, demand and supply as well as general economic sentiment. For example, the recent interest rate cut, on one hand, arguably improves affordability but points to a tougher fiscal outlook. Price depends, too, on each vendor and seller’s specific circumstances and agenda.

But there are ways of getting near the pin, if not in the hole. A must is to attend as many open for inspections and auctions as possible. “This not only gives a feel for price but the level of competition for a property,” says Wilson. “If there are lots of bidders, prices may be higher.”

Richard Winneke, of Jellis Craig, suggests allowing yourself at least eight to 12 weeks to research what the market is doing, which way it’s trending, in the areas you are looking. Note what properties are being advertised or quoted at and what they actually fetch.

Study recent sales and prices in the area, available from independent sources such as Fairfax Media’s Domain Group Data.

Agents stress it’s crucial to directly compare like with like within neighbourhoods. If you’re after a three-bedroom house on 250 square metres in Fitzroy North, don’t compare it with a four-bedroom house on a block twice the size in Malvern.

More than just land size and bedroom numbers, consider construction type, condition of the property, the quality of improvements, functionality, ability to add value, alternative use of the land and so on. Create a checklist. After all, these are some of the many features sworn valuations from qualified property valuers take into account.

Look at zoning. Take a broader view of the surrounds: are there powerlines, rail noise-banks and other restrictions or, conversely, views, a nearby school, parkland, shops or other special features? Look at sale volumes. Is the house homogenous, making it easier to compare prices? Or is it architecturally a one-off or distinctive in some way, which can be harder to price and may have narrower appeal? Frank Valentic of Advantage Property suggests using a superior and inferior property to check.

Keep in mind that vendors also are taking all the same things into consideration, so the price you calculate should roughly tally. Also be mindful, if financing is required, that banks tend not to lend above 80 per cent of their property valuation.

While investors consider yield and projected capital appreciation, homebuyers risk being caught up in the moment, or worse a bidding war, even if they have a “value” in mind, and often will pay more.

Buyer advocate Melissa Opie, of KPI, strongly advocates leaving emotion at the front door. “People don’t make rational decisions in the heat of battle or when negotiating [post-auction],” says Opie, arguing a professional service like hers not only brings a cool-headed strategic approach to the process but assists in determining a fair price based on experience, knowledge – including agents’ tricks of the trade – and industry-only data. Working out how much to pay for a property

  • Attend as many open for inspections and auctions as possible to gauge interest in the property and get a feel for price and market conditions.
  • Look at what properties were advertised for or the price range quoted by agents and see how they stack up against what the property fetched.
  • Analyse comparable historical sales data – look at what similar properties have gone for in recent months.
  • Judge the property against a superior and an inferior example to help determine value.
  • Set a limit – which may be based on your borrowing capacity – but agents argue buyers should be prepared to exceed it by up to 10 percent, especially if intending to live in the property longer than five years.
  • Consider a buyer advocate with agent experience – not only do they have the smarts to calculate a fair price but they remove the emotion and bias from one of life’s biggest purchases.

Case study: Doing the homework pays off

Suzanne and Richard Pavlov know too well the tribulations of trying to nut out what they should pay for a property. Three years ago, they found themselves as underbidders at several auctions. Each time they fronted up, the house was knocked down painfully above the price quoted by agents.

“We learnt the hard way,” says Mrs Pavlov. “We’d think we were a chance at the auction but we were nowhere near.”

Now the couple, who own the Brunswick Food Store, are expecting twins and in the market again for a bigger house. This time round, though, they are adopting a more studied approach to their house hunting, attending auctions, comparing sales data.

In addition, the Pavlovs have received a pre-approved loan from the bank, so they have a good idea the most they can spend. This has prompted them to register with several agents, providing them with the number of bedrooms needed and their budget.

“We’re getting property updates of what’s coming,” she says. “We already have a lead from an agent about an off-market sale.”

Posted by Paul Best – Domain (The Age) on 2nd March, 2015