The 2 metrics to measure value – Kylie Davis

The 2 metrics to measure value – Kylie Davis

How much are the properties worth in your suburb? And if you are thinking of selling, how much will your place sell for?  There are two major metrics that property and financial professionals look at to answer this question.  Kylie Davis from Core Logic explains what they are and how they are calculated.

Transcript:

Kevin:  If you’re thinking of selling a property or if you’re thinking of buying a property, one of the things that you are going to have to know about is price in details. How much is your property worth, or how much is the property worth that you’re going to be buying?

There are two major metrics that property and financial professionals look at to answer this question. To help us understand what they are, I am joined by Kylie Davis. Kylie is the head of content and property services marketing at CoreLogic.

Kylie, what are those two metrics, and could you just explain their importance to us?

Kylie:  There are two key metrics, Kevin. The first one is median sales price, and that’s one that we have heard for a very long time about what the market is doing – what was the median price of sales in a suburb or in a local market? The second one – which is a little bit more modern – is median value.

It’s really about the detail and how those two numbers are compiled, but the short answer is that median sales price talks about the middle price of what’s selling at the moment, but median value talks about the value of property within the suburb as a whole – the middle value of all of the houses in the suburb.

Kevin:  We should really look in some detail of both of those, because there’s a lot of confusion around medians, what they really mean. People just think that if the median sale price goes up, then values have gone up. But it doesn’t quite work that way. It’s not that simple, is it, Kylie?

Kylie:  No, it doesn’t. Median sales price is really the middle value of what is selling at the moment, and it’s a number that’s collected only off properties that have sold. So, if you live in a suburb of, say, 3000 houses and 10% of that market sell that year – so 300 houses; that’s a pretty high level, but let’s stick with it – then it’s the middle value. It’s what property number 150 or 151 sells at that tells you what the middle sales price was.

So, if you’re in a suburb that has a lot of three-bedroom homes but then there’s a new development that goes on the market that’s full of four-bedroom homes that are a little bit more specced up, and those highly specced properties are selling, they will push the median sales price up because they’re selling for a higher number and they’re putting volume into the sales in the market. Or if at the other end, you have maybe some two-bedroom properties that are selling at the lower end of the market, they’ll pull the median sales price down.

Median sales price can move a lot for different reasons. It can move because the sales price of properties is going up or down, but it can also move because the types of properties selling are different to what typically would sell in that market. And it’s also based off the small proportion of what’s selling in a suburb.

Kevin:  Because if you’re looking at a suburb where there’s a high number of renovations happening, this is really going to impact that median sale price, isn’t it?

Kylie:  Yes. So, you might see a median sales price for a lot of unrenovated properties but then the renovated properties will start to come on to the market and you’re comparing them to what has been unrenovated, and it gets a bit out. So, you might turn up to an auction thinking that you’ve done your research and you know what a property is going to sell for, but you’ve based it on a median sales price that’s about unrenovated properties.

Median value is a more useful number in understanding what the genuine value of property is within a suburb, because that’s calculated – often on a daily basis; we certainly calculate it on a daily basis at CoreLogic – based on every single property across Australia. So, every suburb is based off of a median value.

That’s a more genuine reflection of whether there’s growth happening or a decline happening in a suburb. But it’s not a great tool if you’re wanting to buy, because it’s only going to give you a price guide, really. And the guide of it is that if there’s not a lot of property on the market at the time and you turn up to the auction or to the sale and there’s a lot of competition for that property, then just because the median value of the suburb is a certain amount doesn’t mean that the property is going to sell for that.

Kevin:  Are there reports available that will demonstrate this to us, the median value and the median sales price?

Kylie:  Yes. A property report will basically extrapolate a value for the property that you’re looking at based off the median value of the suburb and comparing that particular property to a host of other similar properties in the area to come up with an estimate of what the value is.

Median sales prices are usually quoted by agents in the current market appraisals that they give you. So, the combination of your own research looking at what the median value is plus the research that an agent gives you about a property will help you understand what’s going on in terms of supply and demand and where prices are going.

Kevin:  Kylie Davis is head of content and property services marketing at CoreLogic and also runs the CoreLogic Reports Store. She knows what she’s talking about when it comes to reports, as you can hear.

Kylie, great talking to you. We’ll catch you again soon. Thank you.

Kylie:  Thanks, Kevin.

 

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Kevin Turner
kevin@realestatetalk.com.au
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