I was listening to the radio on my way home on Saturday evening and heard a presenter and a town planner talking about Real Estate in Melbourne. A caller had asked a question of the two regarding what the “plus” meant when an advertised property was quoted $490k plus. The caller was looking at a property in Mitcham, on about 750sqm and was thinking about buying it in order to subdivide and develop.
The town planner talked about due diligence which was all good and well. He gave advice similar to: Talk to council to work out whether the area can be developed, and into what. Is it an area that will allow for high density etc. All very good advice! He did eventually get around to talking about the “plus” as being up to or more than 20%, however he also said he didn’t put too much stock in what the agent said. It was really worth what others will pay.
There are four main parts to buying property in Victoria. Working out what your needs are, searching and identifying possible properties, assessing target properties accurately and finally successfully negotiating the sale.
Today we will talk about assessment, which is really what the caller was asking the town planner to do without even seeing the property. There are many options when it comes to assessing a property that is for sale.
Many people will say to look at the papers, or buy information on line to get sales results. This is fine if all the sales in the area were auctions. In the State of Victoria, resellers of real estate information cannot identify the private listing past Street and Suburb. Numbers are not supplied. So, if you know that a property sold in Smith Street for $800,000 and another sold for $400,000 you still do not know what the difference is.
You can do this if you are diligent. You must physically take note of every sale. If you are looking to buy in “Smith Street” then you need to look at every property that is on the market and when it sells try to identify the property and then it becomes useful. You need to look at every paper, every website and all the online sellers of information. This will still only give you some idea as historical sales over the last 2 years will be difficult to gauge without street numbers. But it can be done. It is extremely time consuming and tedious. But if you have three to six months to build up a local database then it will be useful.
The actual sales price is only the first step. You need to visit as many of these properties as possible. You need to segregate your data into properties that have valuable houses on them, properties that have recently renovated houses and properties that have houses with renovation options. You then need to look at individual land sizes. Is there a development option? Is there an option to rebuild a new home, renovate the existing home whilst subdividing the block? Is it a corner block that is easier to renovate, what is the street frontage (properties that can be split with both new dwellings having street frontage are more valuable than those which are split front to back) What you are trying to do is calculate whether a property was sold for “land value” or was there some additional value in the house.
When there is some additional value in the house you need to look at how many bedrooms and bathrooms, car accommodation, quality of fixtures and fittings, particularly in the bathroom and kitchen. How big are the individual bedrooms, is there a flow to an open floor plan or is it a compartmentalized rabbit warren. You need to look at these questions with each individual style of property in mind. If we are looking at a Victorian home, we know that the bedrooms will be of good size, at least 3m x 3m. The ceiling heights will vary from 10ft to 16ft and if there has been little renovation the bathroom will be at the back of the house and the kitchen in the middle. Because this is how they were added over time. A structurally renovated Victorian home should have the bedrooms at the front, followed by bathroom and hopefully ensuite, then the kitchen and an open plan living zone leading directly on to the outdoor entertainment area. However, you would not expect a 1970’s “Estate Style” home to be set up this way. In fact the master bedroom is usually near the front with the others to the rear. A big house would have an “L” shaped lounge/dining room with a large central kitchen. Unfortunately, these houses usually have limited rear access unless a further rumpus room has been added and then it would be good to see the outdoor entertainment area run off this.
Finally, you need to put all this together to try and guesstimate what someone else is likely to pay.
If you do not know what someone else is likely to pay then you will waste almost a month of your time and effort waiting for the auction, waste money getting pest and or building inspections done. Waste money getting the contracts checked by a solicitor and then when auction day comes around and the auctioneer is calling for opening bids and you have a figure in mind, DO YOU REALLY KNOW WHETHER YOUR NUMBER IS ANYWHERE NEAR ACCURATE.
You cannot use the agents estimate to work out what a property is worth. The “plus” does not mean 10% or 20%. When a range is quoted it does not mean the reserve is within these numbers. The selling agent does not need to, and actually cannot give you, any assistance that would be seen to be to the detriment of getting the highest possible sale price for his client – THE VENDOR. Some agents will quote high and try to negotiate from this point; others quote low and will try to push up a potential purchaser. Your best negotiation tool is to have an accurate appraisal of what someone else is likely to pay: ie your competition.
When it comes to purchasing a property there are actually three numbers we need to calculate or guesstimate. What is it worth to us? In other words how much are we happy to pay for this particular property. Secondly, what is it worth to someone else? In other words, what is likely to happen on auction day? And thirdly, and by far the most difficult, what does the vendor want!
Once we have these numbers we can then begin to set up a buying strategy. We will talk about different buying strategies at another time. You can get an accurate assessment of a property from a experienced and licensed Buyers Advocate or a Valuer. You need to engage them and pay them in order to guarantee they are working for you.
Ian James
Director
JPP Buyer Advocates
