In order to truly determine whether a property is a good value-for-money purchase, a buyer will need to know the elements that contribute to a property’s worth.
It is very important to compare the asking price with other properties offering similar features that have recently been sold in the area. This information will help to indicate whether the asking price is within a fair market value range for the area.
In today’s real estate market there is much more to a home’s worth than simply the price the buyer paid for it. There are certain aspects that a home buyer should consider, such as the property’s location and the micro market surrounding the particular sale transaction.
Researching these elements will assist a home buyer in choosing the right property and seeing a good return on their investment over long term, says Adrian Goslett, CEO of RE/MAX of Southern Africa.
He notes that if a home buyer researches the market and has a good understanding of the various details that are involved in a property sale, along with knowing their own personal and financial requirements with regards to the purchase, they will have a far better chance of finding a home that offers good value for money.
Determining the type of property you are looking for, the price bracket and criteria that the property must have will make the process of finding the right property for easier, says Goslett.
He says the services of a reputable real estate professional could be invaluable in assisting a buyer with assessing their needs and narrowing down the search. "An agent with working knowledge of a specific area will be able to provide the buyer with data, statistics and any other information they may require to make an informed decision.
"They will also be able to provide guidance with regards to the current market in the area and projecting whether the home is a worthwhile purchase based on its asking price, perceived market value and the cost.”
The right price
The price of a home is regarded as what the property is worth today in the current market. However, Goslett says that very often sellers overprice their property due to emotional attachment and it does not necessarily mean that the asking price is a true reflection of the home’s value. This is why it is very important to compare the asking price with other properties offering similar features that have recently been sold in the area. This information will help to indicate whether the asking price is within a fair market value range for the area.
According to Goslett, an accurate gauge of fair market value is determined via a comparative market analysis or CMA. “It is essential that the comparative selling prices that are taken into consideration are less than six months old and the properties within the comparison are similar in size and condition of the property."
While the CMA is an accurate way of determining the right price, he explains that it is not an exact science as there will always be some features or elements of the properties that could differ. A property’s unique features should also be considered when looking at its price, says Goslett.
Assessing true value
One of the major influences in assessing the value of a property is the current market conditions. During the boom phase in the market, the perceived value of property was much higher, however, during the economic downturn this changed says Goslett. "With the recovery we have experienced since 2010, the value of property has once again increased, in some cases outstripping the values seen in 2007 at the height of the boom.”
He says while we were experiencing a buyer’s market where property options were plenty, in many areas increased demand and dwindling property stocks have changed this and demand has a huge impact on the perceived value of property and pricing. "Essentially, a property’s value is largely determined by the buyer in the market – not the seller. The more buyers that are willing to pay for the property, the higher the property’s value.”
Aspects that impact what buyers are willing to pay for a property could be personal choice and lifestyle. A buyer may be inclined to pay more for a property if it fits into their lifestyle needs, such as proximity to a certain school, workplace or public transport. What determines value for one buyer may not be the same for another.
Where does cost fit in?
Often sellers believe that they will be able to recoup a large percentage of the cost spent on renovation and improving the property and price it accordingly. While this is true to some degree, depending on the renovation project or upgrade, the value of these improvements is also very much determined by the buyer perception of the said improvement. “Often renovation projects are based on the current homeowner’s personal preference or criteria. If the buyer has different needs or preferences, the renovation will have far less value to them,” says Goslett.
While a comparative market analysis is an excellent staring pointing in determining whether a property is a good value-for-money purchase, a property’s true value will largely be subjective based on the buyers in the current market. “As a buyer, only you will truly know what a home is worth to you. At the end of the day, a home is a place to live in – not just an investment,” he says.
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