Do your own: house valuation: accurately in any market conditions

Continued ...

Automated Valuation Reports:

One recent innovation enabling you to get a pretty clear assessment of the market value of your property is to pay for an Automated Valuation Report. This can be obtained, for approx. £30 from places like:

http://landregistryservice.co.uk/

http://professionals.mouseprice.com/GetValuationReportPropertyDetailsMPV2.aspx

Such reports are based on the given postcode location. These are extremely good at providing the basics by using statistical information, but it should of course be remembered that an accurate and all-inclusive valuation cannot be done without a close examination of the property itself, taking into account both its current accommodation and its condition.

For anyone who is not conversant with valuation techniques, we recommend using one of these reports as a starting point from which to do your final valuation.

Asking price

Ideally your asking price should be 'ahead of the curve' in terms of the way the local house market is currently moving.

Also remember when pricing your property, that what you paid for it has no relevance to today’s market and what you have spent on your property to upgrade it may, or may not have a positive affect on its current market value, depending on what has been done.

Rising and Falling Markets:

Firstly, when faced with a falling market, house owners should note there is an upside to this. If you are hoping to move up the legendary property ladder, you will find the extra cash needed for your purchase should be less than before; so this could be a good time to move to a bigger house.

It means that you can afford to take less for your existing property because you will also be paying less for the one you wish to buy. Its the difference between the two figures that you will need to raise and this should be less in a falling market.

The converse is also true for a rising market.

In effect this means that it is best to trade UP in a falling market and DOWN in a rising one (assuming that the long term trend in property values is upwards).

Here are a few more tips to end up:

When you are moving in a falling market, its best to secure the sale of your existing place first - by way of exchanging contracts if possible.

This way you will be in a great position to negotiate when buying, even though you might have to move into temporary accommodation in the process.

When selling in this market, it always pays to be particularly realistic about the price you are selling at, since any delay could stop you from purchasing the place you have set your heart on.

When moving in a rising market, however, it would be best to buy the place you want before, or at the same time as finding a buyer for the place your are selling.

This helps the person buying from you, to move more quickly and gives them better certainty; which in turn helps you.

To do this you may need to arrange a bridging loan, to buy before you have actually sold your existing place.

Again, be realistic on your sale price as this will help you complete both transactions, ideally simultaneously.

Finally, we should mention that with interest rates at an all-time low currently, the only way to go for the cost of borrowing is up. When this happens, it is predicted that a large number of over-stretched house-owners will be forced to sell. This may flood the market with property for sale, driving prices down even further.

Our current advice remains, price it to sell - now.

Don't price it in the hope of better times to come.

Here's a tip you may not have heard before - because its our idea!

In a rising market:

Price your house for sale, slightly above market value, and accept a reduction to conclude a sale, if you can't get the full asking price, after about 3 months.

In a falling market:

Price your house for sale, notably below market value, and be prepared to negotiate with those who are interested in buying, to obtain the highest offer available, whilst aiming to conclude a sale within 3 months.

Buy-to-let:

Astute landlords will tell you that a safe price to pay, when buying a house to rent out, is a maximum of 15 times the tenant's yearly rent.

Thats after all repairs necessary to sustain that rental have been paid for, so a survey is important.

This suggests many such properties are still over-priced for investment purposes currently, so care is needed.

Ideally you need to be aiming for a 5% yield, based on NET income as a percentage of capital outlay.

E.G. If you know the net income would be £7,000 p.a., the purchase price, incl. all costs, renovation work etc., should be a max. of:

(1 / 0.05) x 7000 = £140,000.

Note: As the percentage yield goes up. the capital value goes down.

Rent-to-sell:

For those letting houses, why not offer the tenant the option of buying, after an agreed period of time if they are enjoying the property?

Why not use this web site to highlight that option automatically, when you place a house advert with us.

Author of this page:

Peter Hendry, Consultant Housing Valuer

Property Match (UK)

Q: Did you know that an estate agent's valuation is different from a surveyor's one?

A: An estate agent's valuation is really a feeling, using their local knowledge, about how much such a property might sell for, during the next 3 months or so.

A surveyor's valuation, on the other hand, is a written calculation made by a trained surveyor who will research actual recent sales, and compare those with the property to be valued, adjusting for differences in location, size, style, condition, and changes in the market since the date that the other property was sold.

It is this type of valuation that a building society generally commissions when approving a loan, not the estate agent's valuation, because that one is not backed up by research and is not usually carried out by a trained or qualified surveyor.

Remember, when setting your asking price, that the buyer will almost certainly have a professional mortgage valuation carried out before s/he signs the contract. This is the main check on what the property is worth and it will help the negotiations if this figure is found to be similar to the original asking price.

Q: How do I determine the asking price to be quoted for my property?

A: First of all, you need to gain an understanding of what Market Value is. Accurate pricing to market value is the key to maximum market exposure and, ultimately, a satisfactory sale. Accurate pricing can have a significant impact on the sale of your property. Properties priced within the 'market range' generate more viewings and offers, and sell in a shorter period of time.

See above for the definition of Market value.

The existing pool of prospective buyers ultimately determines a property’s value. The more buyers for a specific property the higher the price can be.

If a property is overpriced then the number of potential buyers may drop to zero.

Oddly, if a property is under-priced the number of buyers can increase dramatically. Sometimes this can result in the forcing of the "selling price" above what it would normally be. Such phenomena are irregularities and need to be disregarded by professional valuers.

The currently accepted way to get a clear idea of what “market value” might be, is to look at what 'similar properties' have actually sold for in the very recent past and then to adjust for property and market differences, between that house and yours.

This is what a professional valuers do.

Remember, a good valuer is like a detective in that s/he needs to find out, in detail, what has been going on recently.

You should understand that the market is not the same, day after day. It can vary from one week to the next. As an example there are not as many buyers in the market during the Easter and summer holidays or the few weeks before or after. There are not as many buyers in the market before Christmas until after the New Year. So “market value” is a variable, depending on time of year.

Another important variable is the number of similar properties already for sale, or that come onto the market at the same time as your property. If there are four similar properties on the market at the same time and only two active buyers - then two properties won’t sell. If there is only one property on the market and two buyers, then it might sell in competition and achieve a higher price.

You need to do a comprehensive analysis of what is currently on the market and what has recently sold, then take into consideration how many buyers there seem to be for your type of property and the market timing to determine what would be a fair market value. It is then up to you to decide upon an ‘asking price’ strategy: -

i.e. whether to set this low, high or at market value itself.

Once you are familiar with making these detailed calculations for yourself, you should, of course, do the same for any house you might be interested in buying.

By doing this you will be able to move up (or down) in the housing market WITHOUT being adversely affected by the current levels of house prices.

Doing this well would reduce the stress of moving.

Useful additional links:

Economic Graphs - Houseprices.uk.net

Economic Graphs - Henry Pryor, Housing Expert.

The current, rather disturbing, statistics, as recorded in graphs by Henry Prior, using Land Registry data as well as data from Rightmove etc. These appear to support our theories about incorrect house asking prices. See Full Reasoning for these.

Economic Graphs - HousePriceCrash

How to set your asking price - Lawpack

BBC article on the state of the market - Nov 2010

Calnea Analytics - About Us

Phil Spencer: Gazumping, gazundering and gazanging

Stamp duty: The buyer pays this tax. It is normally charged on all purchases above £125,000, but this is currently suspended until 24 March 2012 for first-time buyers.

For houses costing between £125,000 and £250,000 it was 1% of the full purchase price, but this is also currently suspended for first time buyers.

For those buying houses costing between £250,000 and £500,000, 3% stamp duty is payable, based on the full purchase price. It’s 4% for house between £500,000 and £1M, and 5% for houses over £1M.

Click for latest information from hmrc.gov.uk.

(opens a new window)

Find the correct asking price every time

Professional valuers do market appraisals and valuations, by using comparison-sales

information which, until recently, used to be confidential. This information is now publicly

available online, so you can do valuations yourself. Therefore, you no longer need to rely upon an estate agent's market appraisal if you don’t have enough confidence in it. However if you should decide to obtain one, you can now check to see if IT has been properly calculated.

Sadly, in our experience, estate agents’ appraisals are rarely correct as many simply do not include mathematical adjustments between the ‘sold’ evidence and the attributes of the house being appraised.

The problem appears to be that agents don’t seem to think they have enough time to work out the figures, when offering free market appraisals. Instead they mostly seem to opt for the ‘gut-reaction’ approach instead, sometimes with disastrous results.

Market Value may be defined as:

The price at which a contract to ‘exchange’ on a property should occur, at the date of the valuation, between an educated buyer and a reasonably motivated seller, in an arms-length transaction, after a proper marketing process has been conducted and where all the parties have acted knowledgeably, prudently, and without undue influence.

Whether to use a 'valuation' or a market appraisal? Now that, is the question!

Definition 1 of the term: – Valuation (using AVMs):

A skilful deduction with a written conclusion (including the comparables relied upon) and arriving at a 'calculated' present market value for the property. It uses statistical data relevant to the property under consideration to arrive at the basic value; and then mathematically worked adjustments, for any specific differences between various recently sold properties and the one waiting to be sold.

Unfortunately, few if any estate agents are able to offer this service at present, even though they very often describe their work as having provided their client with a valuation.

Nowadays, anyone may purchase basic statistical data for most houses in the UK, for a small fee from organisations like e.g. www.landregistryservice.co.uk

The necessary mathematical adjustments needed to apply this data to a particular house and arrive at the house's current value may be made by any reasonably competent person with a basic working knowledge of percentage calculating.

Definition 2 of the term: – Valuation (without using AVMs):

The following method may be used when there is plenty of good comparable information and so no need for an automated valuation report (AVM) otherwise known as an instant valuation report (IVR).

A calculation, based on recent sales information – and adjusted for material differences between the sold property and the subject property (the house still to be sold) – which deduces the true current market value of the subject property at that particular time, by using three or more recently sold comparables, none of which involved an excessive amount of credit finance to effect the sale (i.e excluding borrowings over 75% of the purchase price).

To do your own check valuation on an agent’s market appraisal or to prepare your own asking price, first look on the comparable page on our web site, and find the recently completed sales in your locality.

Then do a like-for-like comparison by giving plus and minus values to each sold property in turn, depending upon the advantages and disadvantages (the differences) between the house that was sold and your house (the house being valued). This is done by estimating the amount that a buyer might pay for each plus and minus respectively, and then adjusting the price of the sold house, upwards or downwards, as appropriate, to arrive at the value of the subject house.

Please note that understanding the state of repair of the house being sold is also crucial to knowing the true current value, and needs to be taken into account in the above process. Again, agents rarely look into this.

Finally, if size differences are significant, work out a price per sq. metre for each comparable, and apply the results to the subject house. Discount bathrooms and landings altogether, and only attribute the estimated cost of construction, to conservatories etc.

Done properly, the above methods are fine and don’t even require the use of AVM’s or computer models for estimating current house values.

It’s not rocket science once you know how - but remember, the more ‘local’ knowledge you have, the better.

As explained in the definition above, you must ascertain whether or not each comparison sale analysed, involved a loan of more then 75% of the purchase price. If it did you should ignore that transaction completely and look for up to three others that did not use excessive loan finance. These are the only ones you should use in your final comparison calculation, or market appraisal.

Why? Because excessive loan finance tends to skew true market prices upwards.

Obvious, when one thinks about it.

The result should give you the price to ask, after adding

a small amount to allow for the negotiations.

What’s an agents’s Market Appraisal:

It’s usually a single negotiator's guess as to what a particular house might sell for. This is unscientific and of course, completely unverifiable.

Definition of the owner's Price:

Whatever the seller would like to be paid (irrespective of true market conditions)!

Please note: Despite the above comment, there is no reason why an owner cannot provide a realistic valuation. All they would need to do is apply the methods explained here when doing their valuation(s).

Price it right and buyers will come. It really is that simple

When using Property Match (UK) to market houses, we suggest you keep your asking price looking attractive and say ‘Offers over’ on your asking price - in a rising market. (‘Guide price’ suggests you’re not really sure!).

Our systems are current set to display prices as ‘Offers over’ as the default position.

Remember, it’s always buyers that define prices in the housing market - not sellers.

Are you selling a leasehold property? If so, here’s a guide to the pros and cons of buying the freehold.

Question: How do estate agents DO market appraisals to win selling instructions?

Below is more information about calculating the asking price of any house in current market conditions.

If you find you still have unanswered questions about how to value it, you are most welcome to email us.

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