How to price a property? Is it a science or an art? We would argue it is both. It requires analysing data and artfully collating as much information as you can to make an informed estimation. If you are in the market to buy a new home or an investment property it is important to understand how to price a property before entering into any purchase negotiations or registering to bid at auction. The value of a property can be difficult to pinpoint accurately but if you follow these tips, we guarantee you will be more informed and confident when knowing how to price a property and negotiating on a home that you really want to buy.
Tips on How to Price a Property
1. Keep Your Emotions In Check
So you’ve fallen in love with a property, and you simply must have it. As difficult as it seems you should always approach the pricing of a property mostly with your head and just a little with your heart. Pricing a property from a neutral and analytical position will ensure you make an informed decision on price, and this will make it easier to walk away if the price is not aligned with your budget and conversely it will make you feel confident that you haven’t overpaid if you are successful in purchasing a property.
2. Research the Property Thoroughly
Before you can price a property accurately you must research the property meticulously. This includes: –
- Knowing the neighbourhood the property is located in.
- Inspecting the property in person.
- Conducting a thorough due diligence on the property to check for things like flooding, noise, pipes and other risk factors that will affect price.
- Analysing the comparable properties that have sold recently in the area.
- Preparing a Comparative Market Analysis (CMA) Report.
3. Compare relevant property sales in the area and prepare a Comparative Market Analysis (CMA) Report
Following the property inspection it is vital to conduct a Comparative Market Analysis (CMA). A CMA is a report a real estate sales agent, buyers agent or potential buyer prepares about a home’s current value. It examines prices of similar properties in the area and assists potential buyers to formulate a price estimate of a property that they want to buy.
When analysing comparable sales in the area you need to consider:
Land size and property size – how does the property you want to buy compare to other properties that have recently sold in the area? Is it a larger or smaller parcel of land? Does the house have a larger or smaller floorplate?
Number of bedrooms – this is important when comparing properties. Obviously a 3-bedroom house with 1 bathroom is going to be inferior and priced lower than a 4 bedroom house with 2 bathrooms. Ensure you are comparing apples with apples when comparing recent sales.
Parking – does the property have secure parking (a garage), undercover parking (a carport) or street parking? How many cars can be parked at the property?
Quality of the location – is the house located in a blue-chip suburb? Is it in a good school catchment? Is it close to public transport? How long will your commute be? Is the street better or worse that the other properties that have sold recently?
The level of finish within the property – has it been renovated to a high standard or less than high standard? The value of the house you want to buy will be higher if the house has been fitted out with solid timber floorboards compared with a house that has hybrid flooring. Are the kitchen and bathrooms newer or older than the recently sold houses. It is important to compare the quality of the interiors for all the properties that you are analysing in your CMA.
Once you have compared the relevant sales in the area you should have a clearer understanding of what the property you want to buy is worth. The next step is to open the communication lines with the sales agent who can provide valuable information as to why the vendor is selling and who the other buyers are who are interested in the property.
4. Communicate with the Sales Agent
The sales agent will also put together their list of comparable sales and this is worth reviewing in conjunction with your own. It is advisable to do your own research and not to just rely on the sales agent’s CMA as ultimately the sales agent’s goal is to achieve the highest price for the property. They will be steering buyers in this direction. Remember they are acting for the seller, not the buyer.
Furthermore, it is important to talk to the sales agent to gain information about why the home is being sold. What is the seller’s motivation? Do they have to sell or are they just testing the waters? In other words, are they a motivated seller or not? Ask the agent if they are price guiding (bear in mind they cannot give you a price guide if the house is going to auction) and what other buyers’ feedback has been around price.
We recently purchased a house for a client where the agent advised us the sellers were seeking high $3ms for their home but after doing our own research we valued the property lower and ended up securing it for our client for $3.4m, which was the price we valued the property at after doing our research and our own CMA.
5. Determine Who Your Competition Is
Get armed with as much information as possible so that you can make an informed valuation on the property you want to buy. If you can find out about who the other interested buyers are that is useful information to know. You can ask the sales agent if they have received any offers yet, or in the case of an auction, whether there are any registered bidders yet. This will help you understand the level of competition you are facing and assist you with preparing a more accurate price estimation.
6. Engage a Professional Buyers Agent
If you simply don’t have time to undertake all this research or simply don’t feel confident to know how to price a property accurately engaging a Buyer’s Agent to do it for you could be a smart move. Buyers agents are experts in this area as they price property every day. They can provide you with valuable advice and guidance to ensure that you don’t overpay or miss out on a property because you didn’t realise its true value.
Contact Us
If you would like assistance with knowing how to price a property, please contact us. We would love to help.