How to find out what your home is really worth
Before putting your home on the market there are a wealth of things to consider. Typically your first question would be - what is the value of my house? Before you go down that rabbit hole though, it’s a good idea to narrow it down. Research compiled from the Reserve Bank of Australia (RBA), shows that a more efficient starting point is to ask instead, what is the market value of my house?
This is the difference between what you think the value of your home is and what the market says it’s worth.
It is a truth universally known that some sellers will tend to wildly overestimate what their property could actually sell for; this is human nature, thinking with your heart not your head. However, during this monumental financial transaction, it is important to be super honest with yourself. Keep emotions in check in order to grasp what your home is really worth.
What no one tells you is that this may be very different than the amount you want it to be worth. No matter the size of a property or the reason for selling, most of us develop a strong emotional attachment to our home. So, it comes as no surprise that we are likely to attach personal value when it comes to selling - this can have serious side effects, similar to those unearthed in this article about emotional property mistakes that could cost you money.
Successful sellers on the other hand are a little more hard-headed when it comes to figuring out the value of their house. They do the research, plan their attack and stategise - they are realistic about the price. Here we will explore some helpful ways to do just that.
Ask the broader question - what is the market value Vs. its emotional value?
The first step is to crack the code between market value and emotional value. Having a strong emotional attachment to your home can make it tricky to prise apart fact from fiction.
That misty rose-coloured view could result in over-estimating the value of the property. And there are consequences. If your home goes on the market at an over ambitious price, and fails to attract a buyer, you may find yourself in the midst of one very expensive and time-wasting exercise.
The market value on the other hand, is the value of the home based on stats, facts, and hard evidence. This is the value determined by similar properties in your neighborhood and current market activity. This is the value that a genuine and informed buyer would be willing to pay, and a genuine and informed seller would be willing to accept.
How do I start the process?
The process of establishing the market value of your home starts with solid knowledge of recent sales and similar properties, and finishes with the 3 Rs: research, research and research. It is best approached with a series of small steps:
- Find recent relevant nearby sales similar to yours
- Compare the property to yours - how does the size, condition and location compare?
- Drill down, and be realistic, are those properties in a nicer street? Do they have a better aspect, outlook or view? Are they bigger, better or just more marketable?
By backing up the market value of your home with comparables, you are building up your arsenal with a level of knowledge and decreasing the chance of approaching real estate agents with an unrealistic goal.
What you should do before you get an appraisal
To begin, you’ll need to appreciate the various ways that you can 'value' your home. It’s also important to understand the difference between a valuation and an appraisal.
The next step is to get a free online estimate. Your estimate will give you a ballpark figure, but you need to keep in mind that this is an estimate only, and that online estimation tools don’t take into consideration the physical aspects of your home. So if you have recently renovated your bathroom and kitchen, the online estimation tool won’t know, so take the figure you get with a pinch of salt.
Once you have your estimate, you are ready to shortlist a number of agents to do a free property appraisal.
Property experts will always recommend shopping around for more than one appraisal so you can compare the figure that each agent puts on the value of the property. When you meet with shortlisted agents, they will typically give your property an appraisal and suggest a listing price. Sometimes appraisals can differ widely, in which case, you’ll want to compare them to understand which one is the most accurate.
Now that you have organised and booked your appraisals, it’s time to prepare. It’s natural to feel a little overwhelmed by this process. What will you ask the agent? How will the discussion go? How vocal should you be about your expectations? In order to answer the above, we’ve prepared a helpful agent interview guide to assist in the planning stage along with specific questions to ask agents during the Covid-19 phase.
What happens during the appraisal?
First things first, you have invited an agent into your home to find out its market value. The conversation that follows is likely to begin with the agent asking how much you’re hoping to achieve. While this is a predictable question, it’s one which requires some thought, because like any good game of poker, you don’t want to show your cards until you know what cards the other party is holding.
You will have a much better chance of getting a non-biased opinion if you let the agent reveal their hand first, that is their job after all, to share their knowledge with you.
The key question to ask is, “what is the market value of my property?” This is more effective than asking, “how much could you sell if for?” Or, “how much could I get for it?”
That is because both of those questions depend on so many variables: namely, the selling costs, the speed with which the property will be sold, and the agent’s agenda, for example they may be selling other nearby properties that could impact the price of your property.
At this point you are focused on one thing and one thing only - the market value of your property.
Of course, whenever possible the appraisal process should be the result of a physical inspection, never just a phone call. The benefit is that you get to watch the agent in action and see all the tell-tale signs. What is their body language saying - is it open and positive, or closed and negative? What about their eye-contact - are they able to look you in the eye while they give you the important number, or are they fiddly and distracted? What about their reaction to your property - how did they physically respond as they walked through your home - were they dismissive or attentive?
Keeping your eye on these aspects during the appraisal will help you to draw your own conclusions about whether or not the agent is the ‘right fit’ for you and your home.
What if you get an appraisal that you aren’t happy with?
Don’t be surprised if the agent’s opinion differs from your own, this is a common outcome of the appraisal. The important thing here is to arm yourself psychologically so that when the agent comes out with a figure that is lower than what you had in mind, you don’t get all woozy and lightheaded.
At this point you need to set healthy emotional and physical boundaries to avoid feeling like you will get angry or stressed. If you feel slighted and ready to lash out – think again. An emotional outburst is not going to help this process, actually it can be detrimental because it distracts from the big picture - understanding the true market value of the property.
If the agent’s appraisal figure is lower than what you had hoped for, you can reach back into your research arsenal and insist that they bring the data to the table. These conversations can go a variety of ways.
Let’s just say that based on your research, you think the market value of your property is $900,000. One agent might say, “you want to keep it over $900,000, say $910 - $915 and then be able to drop, since buyers are always motivated by wanting to ‘win’ the battle against the seller by getting a bargain.
A second agent might say, “you don’t want to put a ‘9’ in front of it, because those buyers whose budget is $800,000 - $850,000 won’t look at it, and you’ll miss a much larger buyer pool. Plus, you want to get as many eyeballs on it as possible. Once you’ve stirred up the interest, you can put up the price!”
A third agent says, “if you want to start at $900,000 we’ll start at $900,000 and see how we go!”
Super agent Gavin Rubinstein explains it thus: “It almost becomes a function of, ‘I understand your expectation and I understand your position but if we’re going to approach this realistically, we need to consider facts and we need to consider evidence as the right information to be able to make informed decisions.
We can’t just have this expectation based on hope because it allows us to get to a certain stage based on what’s going on in our life. We need to identify what are the comps, not in the last year, not in the last 6 months - what are the comps in the last 14 days?
What is the dollar buying in terms of value – land size, house etc? What does this represent, what does this offer and where should we start based on all these factors?’”
Now let’s look at what happens if the agent agrees with your price. Personally speaking I’ve been in this situation, and I’ve got the scars to prove it. When the agent who I was most keen on revealed the market value for my property, I became defensive and reeled off all the reasons why a higher price should be achievable. The agent then conjured up this simple technique which involves ‘humouring the seller.’
She did this by agreeing on the price I wanted. After she had listed the property and gone to market, it became obvious that the price was too high. In hindsight, I realised that her tactic had cost me time and money. I’d rather have the tough conversation next time. The lesson was - keep your eye on the big prize and be willing to listen and examine feedback without jumping to conclusions.
Consider a completely different scenario when the property appraisal figure comes in higher than you expected. If it sounds too good to be true, it probably is! How do you know your agent isn’t over-appraising your property just to win your business? You don’t, unless you let rip with a series of razorsharp questions to challenge the agent - what is their figure based on? Where are the comparables? How did they get to this figure? The key thing here is to keep a cool head, you will gain much more by aiming for a level of assertiveness than by accepting what is said at face value.
If the agent is genuine and they know their stuff, they will back it up. If they don’t, you will most likely sense it, and you would be best to go with your gut feeling. It is never a good idea to disagree with the agent’s appraisal figure and then go on to list with that agent. That is one sure way to lead to feelings of resentment and a sense that things are out of control.
Selling your home is a big deal and it is vital that you feel in control throughout the entire process.
What you should do after the appraisal
After the agent appraises your property, it’s time to do your own appraisal. Take a methodical approach and sit down with the notes you made during the process. If each of the property values are approximately the same, you can be confident about them. If they are drastically different, you may need to do more to compare them and decide which is the most accurate.
Give yourself time to evaluate each of the agent performances and consider not just the value figure - but the agent’s selling strategies, tactics and attitude.
When you settle on the figure that you truly believe represents the property’s accurate market value, you might like to ensure the exercise is financially viable by doing a reverse sum to work out the net amount you’ll walk away with. By now you should have specific details about commission costs and marketing fees, plus your legals. Add GST to each figure.
Throughout each of the steps outlined above, you will gain more clarity, knowledge and comprehension about the market value of your property.
Ultimately when it comes to the question of, ‘what is my house is worth’, do your research, gather your facts and check your emotions at the door. More importantly don’t give the agent power over you by saying yes to something you really don’t agree with. Show that you are a savvy, self efficacious seller - one that won’t be walked over. Remember the rules of the game and don’t let your emotions drive the home selling process.