Do not rely on Comparable sales

The single biggest problem our prospects are facing at the moment is being misguided by reserve prices.

In this blog I am going to give you guys the best tips, advice and recommendations on how to accurately predict house prices and what you can do to accurately predict what a market will do in the short, medium and long term.

Most of us would know, that a safe and relatively accurate strategy to value a property is by looking at comparable sales.

Now the problem with only looking at comparable sales is, on the surface you may think that you are comparing apples with apples, However in reality you are actually comparing apples with lemons.

One may be on the high side of the street, one may be on the low side of the street, one may have had previous termite damage which you won't know unless you look at the building and pest report, one property may be next to public housing, one property may be in a flood zone. One property may be in a loose zoning precinct while a property across the road may be in a more strict zoning precinct which in turn decreases the value of the land. These are just some of many examples which will drastically increase or decrease the value of a property which on the surface you may think is comparable.

Now another problem buyers have when looking at comparable sales is, if the market is doing well, 99% of the time agents will list the sold price and ensure everyone knows about it. However when the market is not doing so well majority of agents will not publicly list the price.

You can see the problem here when prices are not always presented to the public comparable sales are not always entirely accurate.

To accurately predict the true value of a property you must also look into detailed suburb data:

  • Percentage of stock on market

  • Days on market

  • Vacancy rates

  • Auction clearance rates

  • Supply and demand ratio

The above factors when studied over 3-6 months can tell you what a suburb will do in the short term and whether there is more demand than supply. It's extremely important that each suburb is researched for a minimum of 3 months, ideally 6+ months to give an accurate prediction of what house prices will do in the short term.

Now when you tie the above in with the below, you can then predict what house prices will do in the medium and long term.

  • Infrastructure projects

  • Economic changes

  • Population growth

After you have looked into this data, you must then dive into the asset selection, no two properties will perform the same. There are many different factors which will either increase or decrease the value of your asset, that can be a blog for another day.

In addition to the above, what is extremely important especially in a time like now with Covid-19, understanding what economic changes are affecting the market you are looking to purchase in and adjusting your data accordingly. For example, a property which sold in Marsfield, Sydney for $900 000 in February 2020 could be considered a comparable sale for a property in the same block which sold in May 2020 for $730 000, as was the case for our recent client.

On the surface, both properties had the same strata report, both properties had the same floor plan, both properties were nicely renovated. However market conditions are not comparable. Vacancy rates in Marsfield have spiked from 1% up to 3.5% in 4 months.

Percentage of stock market has risen from 0.05% to 0.8% in 4 months. Now an added bonus here is if you know the percentage of distressed sellers who have their mortgages on pause for 6 months, you can then accurately predict what the vacancy rates and percentage of stock will increase to once the Australian banks unfreeze mortgage repayments after September.

This shows how important it is to assess each individual market. If you have all this information you can essentially be much more confident when putting in an offer on a property. You can also have more confidence in knowing whether the market will move up or down and this can this assist you when making your offer.

If you guys want to learn more about the above, or want to purchase a property and unsure whether you or your advisor have looked into all the data mentioned above. Please get in touch.

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