How do you know if a property is overpriced?

overpriced-homeMonica has thrown a ‘crystal ball’ question to me this week, which is my favourite kind of topic to tackle – because it gives me the opportunity to combat some of the myths out there about property investing!

So, Monica wants to know: how do you know if a property is overpriced?

If you’ve been following my 2 Cents Tuesday blogs or podcasts, or you’ve heard me give advice, then you may know what my answer is going to be here… due diligence!

It comes down to your commitment to research and due diligence. With a little time and effort (and sometimes, a small investment of cash) you can gain an understanding of how much a property is actually worth.

In my experience there are three things you can do as part of your due diligence to try and get a gauge on a property’s true value:

  1. Find comparable sales.

You want to find comparable sales of similar property assets. This means homes of a similar age with similar features, similar land size, and a similar number of bedrooms, so you can compare apples with apples.

If a property is on the market for $400,000 and similar properties have recently sold for $350,000 to $360,000, then you know the property is overpriced.

You can source this data online. Residex is one of my favourite sources; their reports are available for an affordable price and reveal a depth of information that can be really useful.

  1. Real estate agent review.

Another thing I like to do is to go to  a real estate agent other than the agent who is listing the property and ask for their opinion. Not just another real estate agent in the same company, either, but an entirely different agent from a different company.

Get their opinion by asking: “If I was to own this property and sell it tomorrow, how much do you think it would sell for?

I did this recently when I was looking at buying a property that was listed on the market for $340,000. I took another agent into the property and asked him that question. He said that in his view, it would sell for about $300,000, which was a bit of an eye-opener!

  1. Get a valuation.

Yes, you’ll need to pay for it. A valuation is going to give you a really good indication of a property’s value, to help you see whether you’re at risk of overpaying.

A valuation will generally cost you around $350-$500 and it may be tax deductible, if you go ahead and purchase the property.

I hope this helps you on your buying journey Monica! Remember that regardless of what the property is listed for, you should always do your best to negotiate a discount. I offer some tips for haggling to achieve a big discount here.

Do you have a burning question about your properties or potential investments? I’d love to hear from you!

To add your query to the pile, please click here. And look out for my 2 Cents reply in an upcoming episode of my 2 Cents Tuesday podcast!

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