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Market Value

Tim Lawless from RP Data answers your questions on property valuation.

What is the difference between value and price?

A value is an individual assessment of the price at which a home is likely to sell, whereas the price is an actual figure at which a property has transacted. The reason why a value is more accurate at an individual property level than a median selling price is because the median selling price is a snapshot of just those properties which have sold over the period (typically 12 months). Over a 12-month period you are likely to see only between five and seven per cent of a suburb’s total stock transact, and the majority of stock, which is selling over any given period, may be significantly different to an individual property.

Where do you start to assess the value of a property?

The important considerations for determining the value of a property are: the number of bedrooms, number of bathrooms, number of car spaces, lot area, size of the home, condition of the home, physical location, views and current demand for that type of product. The capacity for rental income can also be taken into account. Once these details have been determined, you can find comparable properties with similar attributes which have recently sold in the area and then go about determining the likely value of the home.

How can agents help align buyer and seller expectations, which are often so far apart on price?

The key to ensuring alignment between buyers and sellers is education. Firstly, real estate agents need to ensure they are completely up to date with both local and macro market conditions. Secondly, real estate agents need to be able to communicate their understanding of market conditions clearly and succinctly to their clients. Median price statistics can be a decent guide to local market conditions, and these statistics are easily available from RP Data. Median prices can be used as a guide for comparative purposes; however, more direct comparisons are considered to be more significant. Assessing comparable recent sales is very important too.

Another tool real estate agents use a lot more frequently is automated valuations. RP Data’s AVM (automated valuation models) provide a statistical estimate of the value of the home based on comparable sales, at the click of a button. Finally, statistics such as the average time on market and level of discounting by vendors provide insight as to how long it typically takes to sell a home and what level of negotiation is evident in the market. Case studies highlighting properties that have taken a longer than average time to sell can provide useful and practical examples for vendors to understand the importance of setting an initial realistic price on their home.

It takes up to three months for the Valuer General to release recent sales around Australia. How is it that rp data can get hold of this information much sooner?

RP Data spends more than $10 million a year on data capture and analysis. RP Data-powered agents assist in achieving a more rapid capture of data by providing us with recent sales information. This recent information is essential to get a true and timely understanding of what is happening in the housing market.

In today’s property market, what is the outlook for property transactions?

At a national level, house and unit sales are tracking about nine per cent below the five-year average. Our estimates of selling volumes showed a modest uptick in March this year, after a weaker than normal festive season. Following the successive interest rate cuts (and subsequent cuts to variable mortgage rates), we are anticipating that there will be some improvement in the number of home sales. This improvement won’t necessarily be experienced across the board but cheaper mortgage payments, coupled with an improvement in relative affordability, is likely to encourage more buyers back into the market. Interest rate movements don’t have an immediate effect on housing market conditions, so it will be important to monitor how market activity adjusts over the coming months.

What property types are buyers favouring in today’s market?

It really depends what market you are operating in; however, housing affordability is a concern for most, so we are finding that units continue to grow in popularity. Of those people buying homes, particularly first home buyers looking for a house as opposed to a unit, smaller homes on smaller lots at a more affordable price point are also proving more popular. Affordability really is the key in the current market. Investors are very much targeting high yielding properties at the moment. This is probably due to limited prospects for capital growth in the short term.

With speculation that some mining areas are experiencing a slowdown based on the introduction of carbon tax, are we likely to see a glut of houses on the market in these areas?

It’s more than just the carbon tax that is impacting on mining regions. Commodity prices have peaked, which means profitability has also peaked and expansion plans are, in some cases, being placed on hold or cancelled. While the resources sector is slowing, it is still very much active. With a large proportion of properties in mining towns owned by investors, it is likely that we will see a proportion start to cash in on their profit by selling; but finding a buyer while confidence is still shaky may prove to be a challenge.

How will the property market be affected by a drop in interest rates?

Lower interest rates can only be positive for the housing market, in the sense that improved affordability is likely to encourage further growth in home values and an increase in buyer activity. Without a doubt the Reserve Bank will be closely monitoring housing market conditions with a view to keeping a lid on excessive price growth.

What is your outlook for 2013?

Since the housing market bottomed out at the end of May 2012, dwelling values across the combined capital cities have risen by just over three per cent. Sydney and Melbourne values are up by four per cent. With a further rate cut in October, it is highly likely that we will continue to see a modest rate of capital appreciation over the remainder of the year and into 2013.

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Tim Lawless

Tim Lawless is the Research Director at CoreLogic Asia Pacific. Tim has been in the Australian housing market industry for more than 20 years with a focus on research.