How to value a property for sale like a pro
- By: Ashley Saunders
- January 2018
There’s no one universally accepted way how to value a property as it’s part art, part science. Ask a few local estate agents to reveal the method they use to value a property, you’ll get a range of answers. Confusingly, none are wrong!
That said, all will base their methodology on three factors. If you understand these factors then you’ll have a major advantage when finding, choosing and negotiating your next home.
So what are the three factors involved?
- Market price
- True value
- What you’re willing to pay
When all three are aligned, then you’ve got yourself a great deal! Let’s explore how to save money on your next home while controlling your emotions and understanding homes true value.
So, here’s how to value a property exactly like an estate agent!
Most estate agents when they value a property, will ask the vendor to name their price. There’s nothing inherently wrong with knowing a vendor’s expectation from the outset.
However, they should have their finger on the market’s pulse and be able to cite recently sold prices of comparable local properties.
This data might come from the agent’s sales in the last year or two, but it could be based on local sold data gathered from Land Registry. Don’t worry, we’ll explore this in a minute.
However, your agent could have stuck his finger in the air and state a price he’ll wish he can achieve for your property. This is the same as an online valuation tool! Which too should be avoided at all costs as they don’t correctly value a property and can’t.
In any case, if you have been watching your property market, over time you will start to see which agents overprice their stock or selecting only the best for their books. Therefore the price which the agent goes to market is a mere suggestion.
Accurate property value
How do you know if the home’s asking price is correct? Or is it slightly over? Has it been on the market a while and so the vendor is offering a discount to get it sold?
The advertised asking price should be roughly the property’s current value. However, for a variety of reasons, this often isn’t the case. So how do we figure how to correctly value a property?
Luckily for you, all the data you will need is just a few clicks away! Doing this research will be worth the hour or so it takes. So grab a coffee!
Step 1: Create a spreadsheet
Start by creating a basic spreadsheet. In the top row, you will want to create the following: Address, Marketed Price, Sold Price, Sold Date, Total Rooms, Interesting Features.
That’s it for the top row. Now we need some data! There are three tools you need and thankfully, there are all free.
Step 2: Gather sold data
The first place you should look at is Land Registry. It’s free to search their online database of sold prices which dates back over 20 years. That said, you’ll still have to pay for such things as boundary maps and titles.
For each property you should be able to see the full address, property type, sold price and the date the property sold.
What it doesn’t show is the floor plan, room sizes, interior finishes as well as other useful pieces of information. However, some of these data may be available from another source.
Step 3: Add in property data
In most cases, we can uncover the missing data using either Rightmove or Zoopla. Both generally save a copy of every property’s particulars listed on their site. They’ll also display the sold data from Land Registry (although, it’s good to check the source too).
Having access to floor plans, photos and the agent’s description enables us to build a picture of similar local properties. So, we can begin to estimate a fair price for the property we are looking at purchasing.
If this sounds like hours and hours of research, then consider how much stronger your negotiating position will be with this data. Just imagine how much you could save if you knew how to accurately value a property.
It’s worth remembering that while the data doesn’t lie and you can quite easily value a property, you are dealing with people who may act irrationally. So you might want to think about the emotional side of the transaction.
Consider how you can build rapport with the seller and agent, so that you can use your data to your advantage. This could be as simple as taking to the seller about something they’re interested in or buying them a bottle of their favourite wine.
What your prepared to pay
It’s completely your choice how much to offer for a house and whether you decide to overpay, underpay or negotiate a healthy discount. Unless, of course, you end up hiring a property buying agent to do this for you, who typically negotiate a discount.
However, using the data you gathered above, you can start to build a picture of the true value of any property. Let’s look in more depth at a few of these scenarios.
Offering less than the marketed price
In certain circumstances offering less than the asking price makes a lot of sense. For example, the property could require extensive repairs or the vendor is desperate to move.
If a property has been languishing on the market for months, then the vendor might be open to taking a discount.
However, one of the biggest risks surrounding offering less is gazumping. The agent might find someone willing to pay slightly more and your purchase fails to complete.
Bidding around the asking price
The agent, having done their homework, correctly prices a property for the current market. While this doesn’t preclude offering slightly less, it could restrict how much you’re able to negotiate.
You could offer more than the property’s value because it ticks your list of non-negotiables and you want to seize the opportunity before someone else. However, you want to have a solid reason why.
Sadly, ignorance isn’t a good enough reason to pay more. Regardless of how you value a property, deciding to overpay could leave you vulnerable to ghost gazumping, where the agent tries to get you to raise your offer for no reason.
A word of caution, it may feel like one property stands out above the rest. However, odds are that something better or similar is just about to hit the market.
As our father would say, never run for the bus as there’s another one around the corner!
How to value a property for sale!
There are many factors which make up how to value a property, regardless of how much you offer or the opening asking price.
Usually, the price is just an estimate and since there is no exact science, you will need to try and feel out your local market for yourself.
When trying to value a property, make sure you do your research, quiz agents and hope you get lucky.