Ascertaining value, or should I say, estimating value, is one of the hardest parts of our job.
Valuing a property is an art, not a science.
It would be far easier if it were more of a science.
Zillow, the American online real estate marketplace, has based their business model on being able to accurately predict the price of any house in the US using artificial intelligence and an infinitely complex algorithm.
Apparently it works pretty well most of the time (within $14,000 according to some claims). Sometimes it gets it very wrong though.
The Australian equivalents are far, far worse. Domain and REA’s predicted values give you a range of up to 30%, and even then they can be off by half a million dollars or more!
These computer generated models are only as good as the data you enter, and unless the property has sold in the last few years and no further improvements have been made, the estimates aren’t worth the pixels they are written on.
So how do we come up with our appraisals?
Well firstly, before we even see the house we can look up some key data points: location, position (in the street), orientation, previous sale price, improvements, accommodation (beds, baths, cars), parking (front, rear, none), land size, overlays, sales in the street, etc.
Then we need to inspect the house to get that all important ‘feel’. How’s the light and scale? Does the floor plan flow? Is it a welcoming house that makes you want to sit down, crack a bottle of pinot and settle in for the night, or are you keen to get out of there ASAP, never to return?
Then we look at the comparable sales (usually going back the last six to twelve months in the suburb and with a fairly wide range of prices – e.g. $1.5 – 2.5m).
We try our best to adjust for the rise or fall in the market over that period, and see where this one fits into the fold.
And last but not least, once we’ve taken into account all of the above, we rely on our intuition, gut feel and experience to ultimately take a punt at what something is worth.
When you know your marketplace well (we try to specialise in a couple of core suburbs rather than generalise across many), you have a pretty good read of what is selling and how each house compares to the next.
Over the last 12 months Carla and I sold 37 properties in Prahran/Windsor. In addition to this we would have appraised, inspected or otherwise stepped foot in a couple of hundred more. Over the years this adds up to thousands of properties in our memory bank.
Throw in our obsession with scrolling through the real estate apps and Property Data website multiple times a day to check the latest listings and results and we have a pretty good understanding of values in the area.
In fact I would argue that we have a far more in depth understanding of values in our market than your average bank valuer who works across multiple municipalities. They often call us for advice and I’m shocked at their lack of local knowledge.
But even we still get it wrong. Sometimes by a great margin.
Especially recently, with the market on a blitzing run, no one can keep up with values… Not even Zillow.
Feature Image: 32 Trinian Street, Prahran