21 Apr Why house shopping is so unique – Miriam Sandkuhler
If you invite five real estate agents into your home and ask them to tell you what they think your property will sell for, you will get five different answers. And quite often, they can vary widely. We can’t say that two properties side-by-side are going to be worth exactly the same amount of money. So how do you go about working out that price? We have tasked Miriam Sandkuhler with sorting that out.
Kevin: You know, it’s a truism that if you invite five real estate agents into your home, ask them to tell you what they think your property will sell for, you will get five different prices. And quite often, they can be varying. So, why is pricing a property so difficult? Because it is. You could even get two different valuations from sworn valuers that will be different as well. But it’s particularly the case, in a hot market, at auction, and even in softer markets, they’re all the same.
Kevin: Miriam Sandkuhler from PropertyMavens.com.au joins me to talk about this. Miriam is also a bestselling author. Her book, look for it, is called Property Prosperity. Good day Miriam, how are you doing?
Miriam: I’m great, thank you Kevin.
Kevin: This is a topic that absolutely fascinates me. I mean, it’s reasonable to assume that it’s going to be difficult to price a property because it’s all about emotions, but also, every property is different. You can’t say that two properties side-by-side are going to be worth exactly the same amount of money. So how do you go about working out that price?
Miriam: Yeah, that’s exactly right. So there are some basic fundamentals to take into account. So there’s the land value of the property, and different suburbs will command a different land value on a cost per square metre basis. And then there’s the cost of the building that’s on top of that property, on top of that piece of land. And then the cost of the building may or may not be depreciated depending on how old it is. So, that’s a basic consideration.
Miriam: Then, other factors are taken into account, like the particular street that it’s in, the particular part of the suburb that it’s in. And the reason that some of those things are factored in is because from an emotional perspective, there are buyers who will pay more of a premium to be in a certain part of the suburb or in a certain street in a suburb. It’s also, I was going to say, it’s also quite not uncommon for there to be a 5% leeway between say, one valuer’s valuation which is deemed quite acceptable because of course, we’re not dealing with an exact, we’re dealing with, in a hot market, a moving market as well.
Kevin: Yeah, and it’s even dependent on which side of the street you’re on as well, because you know, if you’re on the high side of the street, you’re going to get better views, you’ll get more breezes. On the lower side, it’s likely to be a little bit hotter. So, you’ve got to take all of those things into consideration.
Miriam: Absolutely. And the aspect of the property, the shape of the block, is it flat, is it on a slope? So there are a lot of attributes to do with the property itself, that will influence its ability around being what we’d call an A-grade property, but also the price on it.
Miriam: And of course, in a rising market, when you’re the average buyer, they don’t necessarily know or understand that. They take quote ranges literally into account. But often they underestimate the cost of competition and they don’t price for an emotional buy. Therefore they miss out, and they end up chasing a market because they often lack the courage or don’t have the guidance to make smart, informed decisions.
Kevin: When an agent comes to you, as they will do with what’s called a CMA, competitive market analysis, they’ll normally give you a snapshot of some of the recent sales in the area, and they can go back as far as six months in some cases. They’ll look at six months, three months, and even the last 30 days, if the market’s really selling and moving along quite well. You’ve got to be very careful, which ones of those you take into account, Miriam, in my experience because the market does change, both up and down quite rapidly.
Miriam: Absolutely. And look, often I have a bit of a chuckle when an agent gives me a comparative market analysis, because sometimes they’re not even comparing it based on the same property type. We might be looking to buy a house, and they’re giving me comparables in terms of say, a villa, unit, or a townhouse. So, I will always do my own market comparables, regardless of what the agent’s putting out there.
Miriam: And part of it, is with the changes to underquoting, there’s no legislative requirement that requires them to have a comparable property based on land size, or land value. So often, they’re a little bit meaningless.
Kevin: I always find too that real estate agents look more towards the future. They’ll probably give you an indication as to what they think the market may pay for your property, whereas the value is very much in the moment. They’re grounded, they also look at the history to take all that into account.
Kevin: But, we’ve also got to bear in mind that real estate agents are not registered valuers. A valuer is actually trained for many, many years to try, and work all this out. So it is a science, Miriam.
Miriam: Absolutely it’s a science. And a sworn valuer, can only make an assessment based on past sales, which then allow them to create a conclusion in the now. A real estate agent can only ever do an appraisal, but they do take into account the sentiment of the market, and the emotion in the market. And of course, the type of property will determine the level of interest and attraction and emotion, and potential price where that property might go.
Miriam: But of course, you never know until the day. And then of course, conversely in a softer market, sometimes it’s the polar opposite. But there’s other complexity that comes in, particularly, certainly in a hot market, you’ve got social proof of many other people potentially competing for a property and driving prices up. Whereas in a softer market, you might not have people bidding, and then buyers are very doubtful about what to do because there’s no social proof of there being demand for a particular property, even though it might be a fantastic property and a fantastic buy.
Kevin: I always say that anyone who needs to know what their property might be worth, they should spend the money, and get a registered valuation done. Then by all means, call some real estate agents, and ask them. Don’t necessarily tell them you’ve got the valuation, but when they give you a CMA, challenge them. Ask them why they think that your property is worth what they’re saying it is. It doesn’t hurt Miriam?
Miriam: No it doesn’t. And I agree that if you do get an independent formed valuation, use it to set your minimum reserve price. And there’s no reason why you can’t challenge any agent that comes in and is giving you figures different to that. Again, a sworn valuer might come up with something very different to an agent. But a sworn valuation again, doesn’t take in buyer sentiment, and there can in a hot market be a substantial difference to that. And also, in a softer market, there can be a bit of a difference to that. And in a softer market, this is where people can buy well in under-market value. I’ve done that before in soft markets, having bought off mark, and bought $50 grand under the bank valuation. Unfortunately, they don’t add that, take that into account, they just lay the buy and borrow at the contract price. But yeah, absolutely, at a minimum, it’s a smart idea for vendors to do that.
Kevin: Yeah, another tip too is if you’re looking at putting a price on your property before you list it, certainly go and look at open homes, but don’t necessarily take the listed price as a guide for what the market is doing. You can only ever assess what a property sells for.
Kevin: A good example of that Miriam, is that show, Selling Houses Australia, with Andrew Winter, where they’ll actually take the people they’re renovating their home for, through similar sales to actually help them work out really what their property’s worth.
Miriam: Yeah, and I think the Love It, or List It as well, is a little bit similar too, where this is what it’s currently at, and now we’re going to add value to it, and let’s see what effect that has on the market. And again, it’s getting social proof or evidence from other people, and again, estate agents as to where it now sits, because of the value that you’ve added. Or, the difference in this property versus your property, and the pros and cons of a property too.
Miriam: Because when I assess a property, I’ll always look at the cons of it, and are they tolerable? Or are they so compromised that we can’t buy on that basis? So, again, if people don’t understand that, then it’s also very difficult for them to price or gauge where a property might sit. And of course, if they keep missing out on options because they don’t know how to do that, well then, that’s where engaging a buyer’s advocate can really help them.
Kevin: Miriam Sandkuhler, thank you so much for your time. Always great talking to you.
Miriam: You too, thanks Kevin.