australian property prices how to find what your home is worth
How do you find out what your property is worth and what the market value is. Image: Canva.
  • Australian property prices vary substantially across the nation.
  • Determining the market value involves comparing apples to apples.
  • Not using recent and reliable comparisons can lead to inaccurate analysis.

When it comes to looking at a property’s market value, this can be difficult to determine as the value of property varies significantly across the country, across each state, and even in each town.

Since the current property markets are described by experts as a “buyers market” we have finally got the upper hand when it comes to property negotiations. To ensure you are not overpaying for a property, it is important to understand how you can determine a property’s market value and why this is so important in negotiations.

What does market value mean?

A property’s market value is the fair price that a knowledgeable buyer would be prepared to pay for a property and that the seller will accept to sell the property. In other words, this is the amount that a buyer and seller would agree to exchange the property for in a fair transaction.

For example, when a property is bought at auction the market value is the price that the gavel falls on as this is the maximum price a buyer would be willing to pay for the property at an arm’s length transaction, as long as the price meets the property reserve price. The reserve price for a property is essentially the minimum price that the seller would accept.

When it comes to buying a property through negotiation (private treaty), this is where determining the market value of a property is very important. Once you are able to work this out, you are able to minimise the risk of paying too much or falling for tricky real estate sales tactics to drive up the price.

How to determine the market value

To determine a property’s market value we perform a local market analysis from recent sold properties, as well as properties that are available for sale on the market. It is important to keep in mind that your comparatives must be recent and reliable, otherwise, they are negligible in determining the market value of an arm’s length transaction.

Recent comparatives would include sales within the last three months, as well as what is currently available for sale on the market. This is because the markets are constantly changing so the value of a property 12 months ago may be very different to the value in today’s market.

Using reliable comparatives ensures you are comparing “apples to apples”. Look at properties that are similar in size, location, characteristics, and age. The comparative properties must be in close proximity to be reliable. There is no point in comparing properties that don’t meet the same criteria because this would make the analysis negligible.

Why we need to know the market value

Once you have determined the likely market value of the property, you would start to negotiate below this amount and you would be happy to pay up to the market value. If you successfully negotiate to purchase a property under the market value, then you will create value in the property from settlement.

For example, if you are able to buy a property for $900,000 but your market value analysis shows that buyers in the market would typically be willing to pay $ 1 million for similar properties, then you have made $100,000 on your property. This is why having an experienced buyer’s agent on your side to negotiate the best purchase price for your property is very important.

Another reason why market value is very important is in the lending market. This is because Lenders will only lend money against an asset that is worth the same or more because the property is essentially their security against the loan (i.e. ultimately if you cannot repay the loan they will need to sell your asset to recoup the loan).

Upon sale of the property, you will also need to repay your loan against the property so you want to ensure that you will be able to sell the property for at least the amount mortgaged on the property otherwise you will need to repay the lender the difference.

Market value to create equity

If you are looking to invest in a property, then the analysis to determine a property’s market value would help you to create equity in your investment property. Equity will be created when the property’s market value is less than the debt owed on that property.

Therefore, if you are able to negotiate a price lower than the market value, you have created instant equity in your investment property.

Renovating a property to make the value of the property higher than its market value is a clever tactic to create equity in your investment property, and it doesn’t have to be a major renovation either. Some simple cosmetic changes to make your property look more appealing can result in its market value increasing.

Understanding the market value of your investment before going ahead with renovations is very important to ensure you do not spend too much (this is called overcapitalising).

What happens if my property’s market value has gone down?

If your property’s market value has declined or your investment is worth less than what you paid for it, it is not time to fret. Remember that investing in property is a long-term game and if you hold onto the property through the cycles, you will likely be able to come out on top if you are able to hold on to it long term.

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