oc | Tuesday 31st March

Valuing a Home

The Age. Weekly Review, James Buyer Advocates Young Homebuyer series is designed to take homebuyers through the entire homebuying process from the inside.

Today in our young buyer series we are talking about and how understanding the true nature of will put a fair chunk of that promised $1,000,000 into your back pocket.

Apartment: In 2000 a young buyer bought an apartment in Docklands at 15 Caravel Lane for $507,500 and resold it for $576,000 in 2014.

Home: Around 2000 a young buyer spent similar money on a family home in Celia Street $493,000 and sold again in 2014 for $1,500,000.

What were the values behind Celia Street, which put a into that young buyer’s pocket?

What was Market Value?

If your definition of market value is “what a group of people thinks”, then there were literally hundreds of sales at these prices. “Market” value was paid on Caravel and Celia.

Fair Value?

Celia was a normal sale, as was Caravel – so it was probably fair.

Good Value?

If you were looking at living in groovy Docklands, with the promise of no stamp duty and a waterside lifestyle then the Caravel apartment appears good value because you bought what you wanted.

It was YES for Now needs for Price, , Position (PPP’s)

But what if YOUR PLAN, your desired emotional and financial outcomes had included good and a place to build a family in.

Then Caravel appears bad value, a NO on your longer term Five Year Flexible Future (FFF’s). No real growth and limited expanding family options.

How can Good Value be yes and no on the same home?

What is value? What is good?

A little while ago we gave a talk to 100 high end net worth individuals where we asked the participants to “value” a property.

One clear thing came out of this exercise: People have a very wide opinion of value: In this exercise the estimates varied from $300,000 to $1,200,000 on the same offering.

Opinions, Sminions. Human beings love certainty.

Bank valuations provide “value” certainty. Don’t they?

In 2012 only 1 in 4 auctions were selling under the hammer, many with only one bidder. If you were the only bidder, the agents vendor bid $1,000,000 then passed it into you and worked you up to $1,105,000, did you pay true market value? Most banks will take the auction price as “market value”.

Same home in a Private Sale with an asking price of $1,000,000 can get a valuation of $900,000 because the bank valuer needed to be conservative in a tougher marker to avoid being sued.

Same home – two bank valuations – $205,000 difference.

All values are nothing more than opinions based on criteria, set down by those who value (amateur and professional; good and bad) and they vary widely between experts and lay people alike.

Look at a council, bank, agent and other bidder valuation, versus the price that was paid on the next home you like.

How can values be so different?

Because human beings are different people, following different criteria with different agendas.

So your valuation, your opinion, should be based on criteria most relevant to _ _ _

That’s right rocket scientist – YOU.

Market value, fair value, good value are airy-fairy concepts. Its only our opinion but a solid value concept is good value for you based on your clearly established financial and emotional outcomes.

Lets re ask the value question. Did Caravel or Celia represent Good Value for you?

Answer: Depends on your criteria or your plan.

3 GOOD VALUE CRITERIA we think young homebuyers should use when valuing.

  • Criteria 1) What values makes financial sense for your FFF longer term goals. +
  • Criteria 2) What values makes financial sense your PPP now plan. +
  • Criteria 3) What values may you need to think about to be the buyer of this home.

Criteria 1) Should include Capital Growth, Reduced Renovation Costs if kids come, Minimum Changeover costs due to minimum home moves.

Criteria 2) Best bang for your buck NOW.

Criteria 3) Agent quote used to give you an accurate range but that is no longer the case – you need to work that out yourself.

Good Value for You Calculations

Your “PPP now” value of the home is made up of three key opinions.

  1. The seller’s
  2. The highest other bidder’s (if there is one)
  3. and You.

If your “PPP now” values are inaccurate and you undervalue then it’s likely you will think a good home is overpriced and you won’t buy it. Similarly, if you overvalue then its likely you will think a good home is cheap and you may have a higher mortgage than necessary, affecting growth.

Your “FFF long term” value need to based on good , good location, good price content.

Work through the above opinions, formulate you own value opinion based on the three criteria above and you are well on the way to establishing good values for you.

Don’t let anybody tell you something is good value without your doing your homework. Please.


More in The Age, Weekly Review, James Buyer Advocates Young Homebuyer series

Article One: Good Home and Bad Homes – Simply your decision. Glen Iris gain a $million – Southbank lose a $million CLICK HERE

Article Two: Clarity Plan – PPP’s – get the best out of now  CLICK HERE

Article Three: Futureproof your plan FFF’s and put a $million into your pocket – CLICK HERE

Article Four: Due Diligence. Boring but very profitable. Great hourly rate work – CLICK HERE

Article Five: Value Concepts that can work for you – CLICK HERE

Article Six: Practical Valuing – CLICK HERE

Article Seven: Negotiation at the Pointy End – CLICK HERE

Article Eight: Walking the Walk – CLICK HERE

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