Article 5:  How Much is My Property Worth?

“How much is my property worth?” This is a frequently asked question not only by potential property sellers but also those wanting to buy a property, though the question would be phrased in another way.   


There are a number of ways to determine a property’s worth, hence answering the question: “How Much is My Property Worth?” These include: (1) an appraisal from a real estate agent; (2) a computer generated valuation (a.k.a. an AVM); (3) a valuation conducted by a professional certified valuer; and (4) do-it-yourself research and analysis.   



(1)      Appraisal from a Real Estate Agent 


This is a very common service provided by most real estate agents for free, as a tactic to secure your property i.e. to list your property for sale. Real estate agents are constantly looking for new properties to sell as they cannot stay in business without new properties to sell. A real estate agent is dependent on the sale of the property taking place to earn a commission, hence an agent's appraisal is never independent.  So, after receiving an agent’s appraisal, you would still be left wondering “how much is my property worth?”… or how much is it truly worth?  


(2)      Computer Generated Valuation a.k.a. Automated Valuation Model (AVM) 


This is a computer program that analyses a large amount of data to provide a series of data sets to perform a comparable approach. The program relies on linear and multiple regression to compile statistics and form the analysis. While linear regression adjusts for one variable, such as the age of a home, multiple regression which is a similar process, uses a series of variables simultaneously. 


After the analysis, the AVM produces a report with a range of values and a proposed value of the property. This report is then either reviewed by a human valuer, or can be deemed complete. 


There are several fundamental reasons why an AVM cannot replace a human valuer. These include: 


Reason 1:  Is the property being valued really there? 


Computers cannot drive by a house to see if it's actually located where it's suppose to be.  


Reason 2 - Are there unique features of a property that might add to or decrease its market value?  


So a computer returns an estimated value of $450,000. Did it consider the power sub-station next door? The railway line nearby with passing trains causing vibration and noise throughout the day? The school zone? The desirability of its tree-lined street versus the next street over?  


Reason 3 - How long ago since the last valuation?  


Many AVMs (Automatic Valuations) and free online services rely on public assessment records. In Victoria, assessments are carried out every two years - the value may be nearly two years old in that case. Some states mandate that an assessed value not increase beyond a certain percentage, even if sales activity indicates the property has appreciated far more. When you use an AVM (Automatic Valuation) or free online service, you risk a lower value than reality.  


Reason 4 - What makes the comparables comparable?  


A computer might compare your subject property to another property with similar building area sold three months ago 300 metres away. Even if that "comparable" property is in a different, less desirable school zone, fronts a four-lane 80 kph main road, and is flood-prone. Or even if the property was sold under duress, such as in a divorce situation, or not at arm's length, such as to a family member. A computer simply does not know all the less objective adjustments that might need to be made to a "comparable" property's sales price.   

Reason 5 - Is the market declining?   


AVMs use data from recent, nearby sales. If those sales were completed at the peak of a local housing market, the computer will think the trend is going up even if a professional appraiser knows that the overall neighbourhood is beginning to experience a downturn. As a lender, don't get stuck with a property that's been overvalued by a computer.  


Reason 6 - Is there a conflict of interest?  


Free online home values are often farmed out to real estate agents in your area who use the service to get your listing when you decide to sell. The best way to do that is to impress you with their confidence that they can get a higher price for your property. If they tell you your property is "worth" the high end of what they believe they can sell it for, the theory goes, you're more likely to sign a listing agreement. With most things, it's best to "under promise and over deliver" - but the opposite is true when you use a free online home value service.  


Reason 7 - What qualifications, designations, experience and education the preparer of the value has?  


When you work with a professional human valuer, you can be confident they are highly qualified and and prepared to complete your assignment professionally and with good judgment. Most of the time, you don't know the qualifications of whoever is behind those free online values, and they couldn't compare to a qualified human valuer if you did. And if you're relying on an automated valuation, you're not getting the benefit of a professional valuer’s education, experience and expertise 



(3)    A Valuation Conducted by a Professional Certified Valuer 


A competent valuer combines years of experience, skilful judgement, market knowledge and logical reasoning founded on sound tertiary qualifications in property and access to various property sales databases and other resources to arrive at the value of a property. Each property being valued is thoroughly inspected and check measurements made. The valuer provides a robust valuation report which is a recognised legal document.  


The valuer is paid a relatively small fee for his time and expertise. This pre-agreed fee is not dependent on the value outcome, nor does a valuer receive any commission no matter what the value outcome is.    



(4)      “Do-It-Yourself” Research & Analysis 


If you have the time and you are one those people who somewhat enjoy researching information on the internet, making phone calls and analysing various data then the DIY way to answer the question “How much is my property worth?” could be the way. To arrive at a meaningful value outcome, you should also be knowledgeable about such things as property attributes contributing to value, the market relevant to your property and the rudiments of the sales comparison approach of valuation.  




In conclusion, the most accurate and reliable way of determining “How much is my property worth?” is by hiring a professional certified valuer. Given that computer-generated valuations or AVMs are increasingly being used by most real estate agents these days, albeit there are different versions in the market, a real estate agent’s appraisal would be the same as the value figure spewed out by the AVM version they are using. In this regard, the accuracy and reliability of an agent’s appraisal and an AVM is considered almost similar. Lastly, with due respect to an individual’s initiative, confidence and competence, a DIY research and analysis approach would still be deemed least accurate and reliable. Little knowledge is dangerous. 



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