A property is only worth what someone is willing to pay for it… Or is it?

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Many people say that the only true way to value a property is to see what it actually sells for, but that is not true. There are many reasons why a property may sell above or below its true value.

Let me give you an example:

Ten years ago, a friend of mine purchased a property in Perth’s northern suburbs. The property received two offers at the first home open. For a property to sell that quickly you would expect there to be a lot of interest (which there was) and for the sale price to be high.

However, of the two offers presented on the day, my friends offer (the one that was accepted) was $18,000 less than the other offer on the table. My friend offered $494,000 which was just inside the bottom end of the range of $490,000 – $515,000. The other offer was $512,000.

If we go back to the premise that a property is worth what someone is willing to pay for it then this property was worth $512,000. As that is the figure that someone was willing to pay for it.

Why then did the sellers accept the lower offer?

In this case it was because the conditions on the contract were more acceptable to the seller. My friends offer was not subject to the sale of another property, not subject to finance, and the date of settlement was the same day as the property the seller was buying, so the buyer had confidence that their other purchase would go through, and thus took an offer that was $18,000 less.

So, is a property only worth what someone is willing to pay for it?  

The simple answer is No. The true value and the sale price can be different.  

We all love a bargain, right? Are you someone who hits the Boxing Day or July sales in the hope of saving money?

Well, the same can be said for property.

Just like in the stock market, when it comes to property, we all want to buy low and sell high. As buyers, we negotiate on the purchase price to get ourselves the best deal, but on the other side when we are sellers, we want to get the most for our property.

There are bargains out there, properties that do sell below their market value, and there are properties that people pay too much for.

Here are a few factors that may cause a property to sell below its true value:

A Forced Sale:

-Repossession: A property may have been repossessed by the bank or lending institution and the company simply want to recoup their money as soon as possible.

-Divorce: A property may form part of a matrimonial settlement and for that settlement to take place the property must be sold.

-Leaving the country: During the Covid-19 pandemic we have seen a number of people returning to their home countries. Prior to Covid-19 people relocating for work or family would often cause set date sales which could result in the properties selling under their true value. (Here in Australia, people returning home has actually caused a mini property boom as returning residents look to buy and rent thus creating more competition in the property market).

-Other major life events: We don’t like to think about it, but things do happen that cause people to need money quickly. Diagnosis of illness, or major accidents can cause a home to no longer be suitable (for example a property that is not wheelchair accessible) and thus a quick sale is needed.

-Legal proceedings: Apart from family law proceedings this is more often the case in the forced sale of commercial property. If a company goes into liquidation or bankruptcy a quick forced sale may be enacted.

Finally, a family or know party sale. This is a bit of a grey area as legally when a property is transferred the stamp duty is payable on the market value, however there are cases where a property is sold at close to the market value so it doesn’t quite evoke the interest of the government but it is still less than the true value.

So, as you can see there are many factors that may cause a property to sell for less than it is worth.

It may be hard to understand but there are a few reasons why someone would pay more than a property is worth. Basically, they all come down to location, here they are:

-Development Potential: If a number of blocks of land are next to each other and together they form a parcel of land that has a better development potential, then a buyer may choose to offer above the market value to secure the individual blocks.

-Lifestyle: If you owned a property with a view, and the property in front went up for sale, you may choose to purchase it to protect your views and ensure that they are not built out by development.

-Family: If the house next door comes up for sale and you have been thinking about your elderly parents moving closer to you, then you may be willing to pay over the market value to secure it.

So, it is not true to say, ‘A property is only worth what someone is willing to pay for it’.

Property purchasers

As professional valuers we often get asked how we come to our valuation figures.

Being a property valuer is both an art and a science. We use a wide range of techniques to form a professional opinion and determine the value of a particular piece of property.

We do use past sales as a guide, we also use our local knowledge and our understanding of market trends, and that is why at National Property Valuers our team of valuers are located all across Australia.

It is often the case that our valuers have recently valued many houses in the same suburb and can easily compare the quality of the properties in regard to the size, build quality, additions, fitting and finishes, and make educated decisions about where a property sits in relation to those around it.

You now know if you hear someone say, ‘A property is only worth what someone is willing to pay for it’, that they do not have the full story.

You can be confident that by selecting National Property Valuers for your valuation you will be getting the most informed professional opinion.

Call our office on 1800 828 222 to book your professional valuation today!

Max
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