This is a question that agents get asked often from different parties with their own respective interests.
This is a pricing question that is the Pandora’s box in real estate, a loaded question if ever there is one.
The question can be difficult to answer because there are numbers (sale prices), location, type of house (features & benefits), market conditions, aspirations and emotions all intertwined.
What a house is worth will vary depending on whether one is a seller, buyer, agent or property valuer.
Valuers usually prepare property valuation reports for banks and financial institutions, buyers and sometimes sellers. A property valuation is a detailed report of a property’s market value, though sellers tend to view this as the low-ball figure of what their property is worth since they are done on behalf of banks and buyers.
The International Valuation Standards Council defines a property worth as: “the estimated sale price between a willing buyer and a willing seller in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion.”
There is also a simple answer and that is: “A property is worth what someone will pay for it”.
There is a whole field of pricing with this subject taught at business schools and even price consultancy firms. Hermann Simon in his book “Confessions of a Pricing Man” writes that:
“People have asked me thousands of times to name the most important aspect of pricing. I answer with one word: “value.”
“When asked to elaborate, I will use the term “value to customer.”
The price a customer is willing to pay, and therefore the price a company can achieve, is always a reflection of the perceived value of the product or service in the customer’s eyes.
If the customer perceives a higher value, his or her willingness to pay rises. The converse is equally true: if the customer perceives a lower value relation to competitive products, willingness to pay drops.”
Hermann Simon, “Confessions of the Pricing Man”, Springer, 2019, P. 13,
Sometimes when I ask sellers what their house is worth, the replies include:
“because the house down the road sold for XXX and ours is better; we bought it for $1.2m about 2 years ago, spent $250k on improvements and the market has gone up by another $200k in the last two years, so our house must be worth at least $1.8m.”
Some reply: “because that’s what I want” or “that’s what I think”.
On the other hand, buyers are often influenced by a variety of factors such as the amount they have been pre-approved for or think they can afford; what they would like (aspirations), where they see value based on comparable sales, location, features and benefits and the potential for value adding etc.
From the agent’s perspective, a property’s value is something to be carefully considered because too low a figure and there is little chance of being appointed to sell the property. Too high a figure (buying the listing) and it could be a waste of an exercise for all.
In order to answer the question ‘What’s the house worth?” as accurately as possible, agents often prepare what is called a “Current Market Appraisal” or CMA. This takes into account recent comparable property sales and current similar properties for sale and of course is aided by an agent’s knowledge and experience. This is not to be confused with a Property Valuation which only qualified valuers can provide.
What an agent thinks a property is worth though has a major bearing on what a property sells for. The stronger a belief in price by an agent, the more likely this is “picked up” by buyers and translate to a higher price. Belief and pricing is something not usually talked about but it is one of the key factors in a sale.
A seller may think that their property is worth $2m but the highest offer from buyers is $1.9m. So, is the property worth $2m?
A seller or agent can think the property is worth $2m and have countless reasons to back this up such as having a Current Market Appraisal report or a property valuation or even a desktop valuation (offered by a few online companies).
But unless there is a buyer willing to pay the price that the seller will accept, that price or worth is just a wish, dream, desire or goal.
Pricing a property is far from an exact science as much emotion (hopes, dreams and expectation) is involved in buying or selling a property especially when there is a gap between seller and buyer price expectations.
This is when an experienced agent uses their negotiating skills and expertise to close the gap and in the process assist sellers achieve their price or as close to it as possible whilst assisting buyers achieve their goal.
As you can see, what a place is worth is a loaded question!
A buyer or buyers are required to make offers on the property to gauge what a property is really worth. In the case of having many interested buyers, an experienced agent can use buyer competition to achieve a great outcome.
In order to attract as many interested buyers as possible, a property usually requires a comprehensive marketing and sales campaign by an experienced agent. This is the best way to realise the true worth or value of a property.
In summary, if you are interested in selling your property and want to know what your property is worth, I recommend that you:
Contact an experienced real estate agent, such as myself, to prepare a CURRENT MARKET APPRAISAL or CMA report on your property
If it is a unique property or one that has few comparable sales, my advice here is that you obtain a PROPERTY VALUATION by a reputable licensed valuer
WHAT’S THE HOUSE WORTH ? by Jonzun Lee
Jonzun Lee is a trusted Brisbane real estate consultant and Licensed Real Estate Agent. Please contact Jonzun on 0418 885 708 for further information regarding your property needs.
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