Tips for Buyers: How to use online valuations
If you want to understand what a property is worth, you need to know what similar houses have recently sold for.
Thankfully, there are now tools available that make it easy to access local sales information. You can find an online valuation in seconds that will give you a general price guide for any property you are considering.
For buyers, this information allows you to quickly decide whether a property is potentially within your budget. Saving you time, money and heartache chasing properties that aren't suitable.
These online valuation websites come with limitations though. In this guide, we'll run you through some common traps to watch out for and provide tips to help you make best use of these tools.
Tip 1. Understand the limitations
Online value estimates provide a useful ballpark starting point, but the value range is not based on a physical inspection. So it's useful, but not gospel. If you are interested in a property that appears to be close, but outside your budget, check with the salesperson before you decide not to pursue it.
An easy way to do this is to check with the agent on how they feel about the estimate. Do they think it is accurate? Or too high / too low? Ask: "Would I be wasting my time coming to have a look if my budget isn't that high?"
Tip 2. Online estimates are no substitute for proper research
The best way to understand the market value of any property is to have personally inspected recent comparable sales. In practice, that means going to open homes for a few months, finding out what those properties ended up selling for, then using that information to make your own educated value estimate for any property you are considering.
If you can't physically get to those recent sales, then run a google search with the address. You may find that the photos are still available online, allowing you to get a decent feel for the home. How did it compare to the one you are looking at? Would you pay more or less?
Tip 3. Check when the estimate was last updated
Some value estimate sites show the historical movement of the property's online valuation. This usually appears as a line graph slowly ascending over time. On some sites, you might see a jump (up or down) when the property last sold, resetting market value.
If a property hasn't changed hands in a long time (10+ years) then it hasn't had a 'market reset' moment. This can result in a situation where the online estimate is significantly lower than market value, even if the property needs renovation.
Some websites also allow salespeople and owners to object to their current valuation and may adjust the figure based on evidence provided by either party (like recent sales). To spot this, look out for a jump in the online estimate right before going on the market.
Tip 4. Don't connect too many dots
It's common to hear buyers make statements like: "That last house sold for $100k over its online estimate, so that must be what houses are going for now. We are going to offer $100k over the estimate for this next property, too..."
In this case, the buyer is making assumptions regarding the broader market based on one local sale, which can be misleading. Every property is different, every sale is different. Try to avoid making broad conclusions based on online valuations. Some estimates will be too high, some will be too low, some might be just right.
Tip 5. Trust your research and instincts
If you think a property is worth more than what the online value estimates are saying, then you could be right. If you have visited multiple properties in that area, missed out on other recent sales and spent time understanding the market, then it is highly likely that you are a far better judge of value than an online algorithm.
If you need an expert opinion, you could invest in a valuation report from a registered valuer, who will personally inspect the property for you.
Remember, the more information you have, the better armed you are to make smart property decisions. Online estimate websites are incredibly useful, but they are just one small piece of the real estate puzzle.