Bryce Holdaway explains why it’s important that you don’t pay retail but rather pay fair market value.
Stephen and Melissa decided that they wanted to get more bang for their buck and trade their eastern suburbs lifestyle in Watsons Bay and venture across the bridge to explore the Upper North Shore and Northern Beaches and were very happy when they secured their dream family home for $1.75m from a vendor who paid $2m in 2007.
It highlights that there it’s important that you don’t pay retail but rather pay fair market value. It was irrelevant that the vendor paid more than we were prepared to offer as the market suggested that fair value was well below $2m. At the end of the day, Stephen and Melissa are wrapped!
Asking prices are irrelevant
The first thing to realise when you are researching how much you should pay for a property is to realise that asking prices are just a rough guide. It’s natural for vendors to want a high price but their expectation can be clouded by greed or ego. They may have over capitalised, need a higher price to buy a better home or just simply “heard” what the neighbours got for their property. In some cases agents “buy the listing” by giving their highest estimate in the hope of getting the job and will condition the owners later with “current market opinion” or “buyers feedback”.
Fair market Value
You often here that the fair market value is the price that a willing buyer will pay to a willing seller but let me ask you this… how do you know the answer? The truth is tat until a deal is done then you ill only ever know in hindsight. A valuer uses an alternative approach and it’s what I suggest you should do too. It’s called a “Comparative Market Analysis” where they will find similar properties – comparables - that have sold recently to provide a comparison usually within a 1km radius of the subject property.
So you should find out what similar properties have sold for so that you can determine what value is. This should be at least 100 properties which I know sounds like lot but that’s what it takes to know the market. A buyer’s agent would be inspecting at least this many each week by physically walking through them and monitoring every listing in there are online. As a result of doing this, you’ll then know the little nuances of why one side of the street performs better, why one pocket is better than the others. Importantly you will know as much as the real estate agent and perhaps even more if they are from out of area and this will balance the situation during negotiations!
With Stephen and Melissa, we knew intimately what values were like in North Balgowlah so armed with this we could be firm on price and make sure we didn’t pay retail for the property. In fact we picked up a very good buy!