How to: Determine market value so you don’t overpay

How to: Determine market value so you don’t overpay
How to: Determine market value so you don’t overpay

When looking to buy a property, the one thing that concerns every purchaser is how much the property is really worth.

As one of the most expensive purchases of lives, it’s understandable to be concerned about overpaying.

However, determining “market value” is trickier than it sounds. While it is effectively true that "market value" is whatever the market will pay for the property when it sells, this advice doesn’t do new buyers, or even experienced buyers, any favours when they’re working out what they should prudently offer or bid for a home.

The methods to work out what you should pay are varied and some of them require a lot of time and effort.

Heading to the suburb’s median price may be on many a person’s “top” thing to do to get an idea of value in a suburb. However, this is fraught with difficulty. Here are four things you should know about median price first, before deciding to use this as a way to determine value (it’s not).

With median prices ruled out, what are we left with?

Buyer’s agent Patrick Bright says that it is through comparative market analysis that buyers will work out the best price to pay. That is, looking at other properties on the market or hose that have recently sold and using this to get a gauge for what this property should sell for. This isn’t a bad technique.

He suggests that 100 comparable homes are inspected. Quite an undertaking.

“When I started in real estate as a selling agent I didn't really have a clue what homes in the area were worth. The owner of the real estate office said to me, 'Patrick, you need to learn what the market value is of homes in the area. I want you to go out and see as many properties as you can in the next few weeks'. He told me I had to inspect each home and document all its relevant features,” writes Bright.

“I decided that I was going to inspect 100 properties and so I pretended to be a home buyer for about four weeks. I covered four or five suburbs, looked at a little over 100 properties and took notes on each one. I wrote down the asking price and what I thought they were worth and followed them up after they'd been sold,” he explained.

He attended a lot of auctions as well, and by the end of the month he was fairly confident about what the market was doing and what properties were worth.

He says this is some of the best advice he has ever received and while it’s a lot of work, it’s worthwhile.

Meanwhile, Michael Matusik points to rental returns as a key factor in determining value, particularly for investment properties. He says that they should really be used as the benchmark.

“And the 5% gross rental return – the old school marker which essentially converts to $1 in weekly rent for every $1,000 spent buying a property – is still the most accurate measure, in my opinion, to help determine investment value,” he writes in his explanation.

Technology is increasingly looking to make our property research easier. The new app RealAs looks to present predictions of what the properties are worth, and notes that they do so with a high degree of accuracy – factoring in features like what is on the market and comparable aspects.

Sadly, the algorithm is a closely guarded secret and is not available for everyone to play around with – but it does allow you to plug in any property that’s on the market right now and see their estimate.

Then there’s the option to pay for a professional valuation. There are four types:

  1. Full valuation

  2. Short form or pro forma valuation

  3. Restricted valuation (to include “restricted assessment”, “kerbside” and “drive by” valuations)

  4. Desktop (to include electronic valuer review - EVR)

Source: RP Data

If you want to know the differences between these valuations, and how each of them is calculated, you can read our in-depth explanation here.

See over page for the things you must know about valuations.

A valuation may appear to be the natural way to answer this question of what your property is worth, so let's take a closer look.


  • It's not an appraisal
  • They're not an exact science
  • There are multiple types of valuation
  • Comparables are heavily relied upon
  • You can assist the valuer

There are also many reasons why you’d want to get an independent valuation – observer Cameron McEvoy aptly describes five crucial reasons you’d consider this - and so it pays to be aware of what is involved.

Here are five ‘must know’ elements of valuations:

How to: Determine market value so you don’t overpayIt’s not an appraisal

You may have had an appraisal with a real estate agent and now believe that your home can fetch in excess of $630,000 on the current market. This may be the case, however a real estate agent’s appraisal is not a valuation and will not be accepted by the bank as such.

While most real estate agents act with professionalism, investors must be aware that it’s not unheard of for real estate agents to alter the appraisal they provide you to match your expectations and to be fairly bullish with their appraisals to secure a listing.

A valuer, however, is immune to these pressures, tasked with one job and one job alone – valuing your home.

How to: Determine market value so you don’t overpayThey’re not an exact science

It will be of no surprise to any savvy investor that figuring out the price of a property is never an exact science, even for those trained in the valuation field. Similarly, obtaining two different valuations also isn’t an unheard of occurrence and is the reason many investors will head to a different bank to obtain financing, particularly after a renovation.

Observer Mark Armstrong refers to bank valuations as being ‘murky waters’. “Remember if a valuation comes in too high and the bank loses money on the loan then the valuer maybe legally liable,” he notes, which may suggest why there is also a general impression in real estate that valuers are conservative with their estimates.

Similarly, it has been pointed out time and time again, such as by Mal James in this article, that valuers are subjective. This is because they are human beings, and they act with the information provided and their knowledge to come up with the best possible response.

How to: Determine market value so you don’t overpayThere are multiple types of valuation

While we’re focusing on a fairly rigorous in-person valuation, there are a number of different types of valuations. From the DIY desktop valuation (which have varying results of accuracy), to the ‘kerbside’ drive by valuation, be aware that not all are created equal.

RP Data lists four different types of valuation that you'll want to understand:

  • Full valuation
  • Short form or pro forma valuation
  • Restricted valuation (to include “restricted assessment”, “kerbside” and “drive by” valuations)
  • Desktop (to include electronic valuer review - EVR)

How to: Determine market value so you don’t overpayComparables are heavily relied upon

One of the major aspects that valuers look at to come up with a final figure is that of 'comparables'. That is, recent sales in your area that are close to your property in location and type. A valuer will be required to judge whether your property is superior or inferior to these sales, and so adjust their valuation accordingly.

If you want to get an idea of how the valuation may stack up, it'd be worth finding out the latest sales that they will be looking at. This also means that for properties in remote areas, or unique style homes, it will be trickier for the valuer to come up with a figure and, therefore, more subjective and down to interpretation.

How to: Determine market value so you don’t overpayYou can assist the valuer

As with any property, present it with its best foot forward for the best change of securing a good valuation. While valuers do not want to be harassed, told how to do their jobs or provided information that could sway them against the numbers, you can be helpful and provide information about improvements undertaken since purchase.

Be on site, ready to ask and answer questions, and have all the information about your property on hand.

Despite the reasons to get a valuation, there’s always the other side of the argument. If you’re considering a valuation, you may also want to hear Terry Ryder’s thoughts on why valuations are a “waste of time and money”. Late last year, Property Observer also covered a heated debate that asked for an ‘overhaul’ of the valuations industry.

Tips for those wanting to get the best from a valuer:

  • Provide them a list of comparable sales (potentially inside the same project, as well as some that are not). While not all valuers will use them, some will.

  • Apply for finance six months before completion, not six days and if you find the valuation comes in low it gives you time to get a third and a fourth.

  • Attain your own valuation, using a valuer that is on your bank's panel of valuers.

  • Ask to see a soft valuation so you can check the comparables used and the comments made.

  • Bear in mind that the valuer often has a different valuation for mortgage purposes as opposed to sale purposes.

    But mainly:

  • Do your research beforehand.  Go out and look at 100 or even 10 before you make a purchase decision. If you've done your research you should be confident it will value up.

Source: CPM Realty


How to get property valuations right

Property valuation 101

Letters to the editor: Valuation experiences

Jennifer Duke

Jennifer Duke

Jennifer Duke was a property writer at Property Observer

How To First Home Buyers Valuations

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