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How much should you pay when purchasing property?

One of the toughest challenges facing buyers in a hot and fast moving market is knowing how much to pay when purchasing a property?

How far over do you need go when properties are listed for ‘offers over’? What is the ‘right price’ to pay and who is determining these prices? Ultimately the question that needs to be asked, is what is the property worth?

In reality a property is worth what a buyer is prepared to pay (and to an extent, what a bank is prepared to lend on it).

At this stage you may be thinking that this question is going around in circles, somewhat like a Doctor Seuss riddle. It’s worth what you pay but how do you know what to pay for its worth?

As with all real estate decisions, research is key – understanding the marketplace. To delve a little deeper and consider the elements that place a value on property, the first consideration is the land on which it stands. In essence a contract for sale, is a contract to sell land with improvements added to it. The number of metres square, proximity to services and infrastructure, how level or usable it is, and the general aspect and ambience will give a guide to the value of land.

The Valuer General’s Office provides every land owner with a government generated property value for all land in NSW every 3 to 4 years. This is the value from which our rates are calculated.

Anyone can access the land value for any property, for any year back to 1997. If you are not the registered owner you will pay $12.40 for this information, otherwise it’s free.

Real estate agents rely heavily on their own experience and comparable sales data when appraising properties to set a price to sell at. These days the internet provides buyers with loads of free information and they can also purchase online comprehensive reports with estimated values included. This data analyses improvements such as the building materials used, number of bedrooms, bathrooms and parking and the price of other properties sold in the area. A few well known sites  for buyers to gather sales information are RP Data, Residex, Australian Property Monitors, Price Finder and On The House.

Despite carrying out extensive and comprehensive research, some buyers are experiencing price elevations driven by competition from other buyers. In effect this is where true market forces come into play. If supply is low and buyers are competing against each other, prices will naturally rise.

A level head and clear plan will come in handy under these conditions. By thinking about what you want to pay, and sticking to a limit, well prepared buyers can engage with a hot market with confidence. Submitting your best offer from the outset can be a great strategy for buyers, as it shows a genuine intent to purchase and can lead to a quick exchange.

It appears that the two greatest factors motivating buyers at the moment are the potential for growth, and desire. If a property has the potential to increase in value in the future either by improvement, capital gain or a combination of both, buyers are paying top dollar to secure it. When the buying decision becomes an emotional one, purchasers will pay a premium to secure ‘the one’.

Whatever is driving this booming real estate marketplace, the reality is that buyers should pay what they believe the property is worth to them. When purchasing a home for the long term, buying high will usually be absorbed by future growth, and investors need to analyse the numbers to look for the return.

With a good knowledge base, a clear plan, determination and an open relationship with your real estate agent, buyers can purchase property at the right price every time.

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