16 Aug Getting the most when you sell – what impacts price – Kent Lardner
We talk about what influences property price fluctuations in a particular area but what will impact the price of an individual property? Kent Lardner from VIEW is the genius behind many of the desktop valuation models in Australia and he talks about how they can pick what will impact the price of your property.
Kevin: Just what influences price? What’s going to impact the price of your property or even what should you be looking for when you’re looking to buy a property? Kent Lardner is from View.com.au. It’s a company you’re going to hear a lot more about.
Kent, thank you very much for your time. I’m just keen to know from you – because I know you’ve done a lot of modeling on this and you’ve looked a lot at what creates value in a property – what are the key drivers that you see?
Kent: The most common valuation technique that’s used out there is really matching three comparable sales. We’re looking at properties that have sold recently in the local market of a similar size.
Some of the things that go into driving that price are those things we can measure – such as a bedroom count, a bathroom count, a car space, or whether they’re on a main road or not – but then there’s the stuff that we can’t measure, which really comes down to quality. That’s where the human comes into it and can match up comparable sales that are truly comparable, based on build quality and finish or things such as views.
Kevin: Some of those things that you mentioned there that add value can also detract value, a classic example being too close to a main road, being close to heavy transport, factories, and so on. Have you got a feeling for how much they impact negatively the price of a property?
Kent: A lot of these things can certainly be a double digit when you compare it properties that are further away. Typically, what we do is when we find something that’s a little bit adverse nearby, you always look for comparables that are very close by or on the same street so that they’re all sharing the same dimension.
A railway is a good example. Being right next to the railway line, overseeing the railway line, you look for other properties in that same location looking at the railway line. But then you go back one or two streets, you don’t see the railway line but you have walking distance to the station, so it becomes the opposite of that and becomes an attribute, a positive feature, towards price.
Kevin: What are some of the other things that would drive price? We hear a lot of talk about pools, whether or not they add any value. What’s your view?
Kent: I’ve seen research that says one thing one week and another thing another week. Typically, what we find when we try and model and use pools, probably the first thing to call out is we don’t have a robust data set that applies to every single property with a pool, but you can often find that it would influence anything up to $20,000 or $30,000 we’ve found in some of the models. But more often than not, where we’ve tried to test pool as a variable in our models, it’s so hard for it to stand out and be what we call statistically significant.
It’s an unreliable measure from a statistical perspective, so what we often fall back to is the anecdotal piece, which is a lot of pools are attached to a renovated house or are part of a style of property or finish of property that its cohorts are also renovated and therefore, the prices are higher.
Kevin: What you’re saying, I guess, is why would you put a pool in an unrenovated property, where it’s not going to add much value? But you renovate the house and you probably double the value of the pool.
Kent: That’s right. Then it becomes a different market or submarket. There are people out there who say, “I want a renovated house and I want a pool, and I can afford both,” so it creates an entirely different market. People are only looking or searching for that style of property.
Kevin: Talking about values, is there a standard value you can put on, say, a bedroom, the difference between a three- and four-bedroom home?
Kent: The interesting thing… We call this multiple-regression modeling. How we use this is we take all the sales that happen in a given location, we’ll pick on a suburb, and then what we do is we bundle them all up and we look for how much the sale price varies on average for a one-unit change in something: a one-unit change in land size or a one-unit change in bedroom or a one-unit change in bathroom.
The one that often stands out – and most people don’t realize this – the bathroom, more often than not, is the big value item. When we do this, we do it entirely objectively. We let the numbers talk to us, obviously. We’ll let the data speak, as the saying goes. The bathroom often would have, say, as an example, $100,000 coefficient value and the bedroom might only be $30,000, which is really interesting.
The standout for me and the lesson learned here is if you’re really comparing property A to property B, that tells me that you should always have the same bathroom count, because if the bathroom represents the biggest value, you want to make sure you’re looking at apples with apples. You really want the same bathroom count.
The other interesting thing – and this is just my hypothesis – is that a property with a one-bathroom count is often a very different style of property to a two bathroom. If I’m renovating a house, I buy the old original house that’s 60 or 100 years old, they’re all one bathroom. So, suddenly, when I renovate it, I’m not going to leave it as a one bathroom; I’m going to add a second bathroom. The two- or three-bathroom house isn’t just purely the bathroom count. It’s also reflective of the fact that it’s a renovated property, so that accounts for a lot of that variance in value.
Kevin: It’s pretty similar to what you’re saying about the pool, isn’t it? It’s what you expect in a property. I guess buyers generally expect a certain level of accommodation in a certain price range, Kent?
Kent: What people are doing when they’re searching for properties is they’re filtering. A lot of people say, “I only want a two-bathroom house,” so when they’re looking for their properties online, they’re actually ignoring anything – not even viewing a property – that’s a one bathroom if they are looking for that larger property.
You will get some people saying, “I want this location. Therefore, I’m willing to renovate. I’m willing to extend. I’m willing to put up with a one bathroom.” But then you have a whole market out there, a whole bunch of buyers, who specifically say, “I don’t want to do any work. I’m over the renovation thing. I just want to spend my money and move in.”
Kevin: Fascinating conversation. Kent Lardner, from View.com.au. Check out their channel on RET, as well, because there’s a lot of really great information in there, and Kent, of course, supplying some good data for us, as well.
Kent, thank you very much. Look forward to catching up with you again real soon.
Kent: Thank you, Kevin.