Determining the Market Value of a Property

Finding your perfect home is only half the battle; negotiating and paying the right price for a property is the other half. One of the key fears is overpaying for a property – so how do you avoid that?

Making sure you’re not overpaying for your first property purchase is absolutely critical. You probably don’t have oodles of deposit and need it to stretch as much as you can, to get you the best home you can afford.

As a First Time Buyer, your first property purchase won’t be your last, so you’ll be selling at some point. Therefore, if you overpay when you bought, you might sell at a loss in the future, or not get as much profit as you should. Overpaying by £20,000 now for example means that whenever you sell, you will get £20,000 less than if you had offered the fair price for the property.

What determines a property value

At the end of the day, a property is an asset, and the value of an asset is defined by what a buyer and seller is willing to pay for it. Your exam question is: “If I buy this property at £x today, can I find another buyer willing to pay £x or higher tomorrow?”

So when we try to determine the fair market value of a home, the most useful source of data is recent sales in the market, for similar properties, in the same area.

How do I find sold house prices in my area?

Every property sold in the UK has its sale date and value recorded publicly at the Land Registry website. However, because the website is not very user friendly, I recommend two other websites to do your research into sold prices.

The first website is Zoopla – you can go to their Sold Prices tool and search by street or postcode. Depending on the property, you might be able to see more details – such as number of bedrooms, size, pictures, etc. All useful details to have.

The second website is Rightmove‘s Sold House Prices tool. Its not as easy to use as Zoopla in my opinion, but it does have one key advantage: because Rightmove is where most of the sold properties have been advertised, they also show the listing, so you have full access to floorplans, pictures, description, etc. All very useful information to have (as I will elaborate in the next step).

What are the factors that influence house prices?

Now that you have access to all sold prices of similar properties in the area, now what? Every property is different, and even if you find an identical one, it might have been sold 2 years ago, and the market would have changed since then.

Before you use the sold prices of similar properties, you need to understand the main factors that influence pricing:

  • Location (for convenience to work, public transport)
  • Location (for school catchment areas, local amenities like parks)
  • Location (for noise, pollution, safety, desirability of street/neighbourhood)
  • Size of the property
  • Number of bedrooms (and the sizes of bedrooms – e.g. single, doubles)
  • Number of other types of rooms (bathrooms, study room, play room, kitchen size, lounges, conservatories, shed, garage, granny annex / garden annex, etc)
  • Desirability and decorative standard of the property
  • Garden – size, decorative standard, features
  • Development potential – extensions (loft, side, back, return), structural alterations
  • and many many more!

So what you want to do is start compiling a spreadsheet of similar properties in the area, their sold prices, and score each sold property for each criteria above, on a scale of 1 to 10. Try to do this from a general market perspective rather than your personal preference – e.g. all you need is a bus stop on the street as you take the bus to work, but the typical home buyer in your area might want a tube station or train station nearby.

What’s the fair market value for a property you’re interested in?

Now, after you’ve gone for a few viewings and have your eye on one. How do you calculate the fair market value?

With your spreadsheet of similar sold properties, you first score the property you’re interested in, the same way you did the others, on the five criteria above. Then you start to go through your list, what other properties have similar set of scores? What were their sold prices? You’ll start to quickly narrow down to a set of sold prices, and from there you can figure out an average, with some adjustments, that would give you a rough fair market value for the property you’re interested in.

Now, ready for a mind blowing statement?

While you now have a good idea of the fair market value, the price you are willing to pay, and the seller will accept could be lower or higher than the fair market value.

Confused? That’s OK! We have another article about how to decide how to much to offer for a property – either lower (and making an instant profit) or higher (to secure your perfect gem from other buyers) than market value. (article in progress – check back later!)

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