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How To Estimate What Your Property Is Really Worth
Once you have made the decision to sell your property, the first action to take is to have an idea or estimate on how much it is worth in the market.
Because real estate often do not transact at a fair value, your estimate only serves as a measuring stick on the price range that you should sell.
The best example of this is in Singapore in the transaction of resale HDB flats.
Flat owners never seem willing to sell at valuation (fair value). They would ask for a cash over valuation on top of the valuation price to arrive at a transaction price. The selling price that you set whether above or below the fair market value is entirely up to you and how you view the market.
If prices are rising strongly, it could be wise to sell higher. And when prices are slowing down, it could be shrewd to sell lower.
Get your agents to work for their commissions
It is puzzling how little property buyers and sellers make their agents work for their commissions.
In many cases, one single deal alone can payout a property agent more than what an average person makes in 6 months. Here are just some things that a good real estate salesperson does for you
- Guide you through the entire process of the transaction process from start to end. They should be fluent in their descriptions and explanations.
- Discuss with you what would be a reasonably high price to sell your property. Although the higher the transacted price will result in a higher commission payout, some may ask you to sell low so that they can make a quick easy buck.
- Provide recent transaction data in your area so that you can judge for yourself what are the price points where most buyers are buying.
- Advertise and market your property listing in mass media and targeted marketing channels.
- Show your property to potential buyers.
- Pre-qualify potential buyers so that your precious time is not wasted on lemons.
- Prepare and negotiate terms and advise you on your risks.
- Ensure that whatever you do or disclose is in line with the law.
- Advice you in detail on the closing costs involved that you have to fork out.
- Review finanlised documents to ensure that everything is in order.
For a start, get your agent to get you an estimate of how much you can fetch for your property.
You will usually have to provide the property address, remaining lease, type of property, land area (if applicable), build-up area and current rental (if applicable).
If you have yet to appoint a realtor, call up at least 3 random agents and ask for them to provide you a value. You can find hundreds of them in the newspapers alone.
If one is too busy to attend to you, it is an indication of their inefficiency. Those who want to serve you will wholeheartedly do so.
Call a valuer
A valuer’s job is to determine what is the value of your property.
But to get a concrete valuation, they have to physically go to your apartment to gather data. So through the phone, all you can get is an indicative estimated valuation. The data collated by valuers are very substantial.
With your information, they can usually return you an estimated value within minutes.
Just remember that this figure is indicative until verifiable with a physical inspection.
Gross rent multiplier (GRM) and IRAS
GRM is a commonly used formula for real estate investor to value a property. You typically flip open the newspapers and go to the section for property listings.
Find 3 properties for sale in the vicinity of your property with comparable size and amenities. Note down their asking prices. Next find another 3 properties for rent in the vicinity of your property with comparable size and amenities. Now take the average asking price divided by the average rental.
For example $1,000,000/$3,500 = 285. 285 is the multiplier to use on your property rental to find the estimated value.
Wait. You are not renting out your property. How do you know how much you can get for rental?
Go check out your property tax details. IRAS uses an annual value to compute your liable property tax. And this annual value is an estimate of how much you can fetch if your property is rented out.
This allows you to reverse engineer the equation to find out your estimated property value.
Let’s say your property tax is at $1,440 at 4% annual value. This works out that your annual value is $36,000. Divide that by 12 and you get a monthly rental of $3,000 for your property. Next use $3,000 times the multiplier of 285 as mentioned earlier. You will then arrive at a property value of $855,000.
Checking your neighbourhood
Taking a look at recent transactions in your neighbourhood is a good way to get a feel of the market. But recently this has become a weird paradox in Singapore.
Properties situated along the same road next to each other can have highly different property values. Even new launch condominiums can cost 50% more than a completed apartment nearby.
Common sense tells us that a completed apartment is worth more than one that is yet to be built. This does not seem to be the case in Singapore. Especially in the heartlands.
A stranger thing is when a new launch can cost significantly more than another new launch situated just beside it.
So if you are going with recent transactions to estimate your property’s value, take note to only use related and relevant properties for comparison.
Instead of using the transacted price, pay attention to the price per square foot (psf). Also note that shoebox apartments tend to cost more psf compared to normal apartments.
What is your property worth?
It has to be repeated that how much your property is estimated to be worth is different from how much you can eventually get for the sale of it.
Market fair value is different from transacted price.
Take a look at the HDBs selling at over $1,000,000. Their valuations are nothing close to that price. Yet it transacted at those levels. Then take a look at the properties listed in auctions. People often buy at prices below the fair value of the properties.
By getting an estimate of what your property is really worth only serves as an indication of how much you can sell. Whether there will be real buyers willing to buy at price depends on many other factors altogether that are out of your control.