Not everything is what it seems!
The internet has become a major source of information and for communication, as well as a utility for trading goods and services. Many of us would find ourselves lost without online access albeit to source information, communicate with our social networks, entertain ourselves, pay our bills or catch up with daily news.
We put so much trust into what we uncover online, particularly so if you are a Gen X (age 38 – 53), Gen Y (Millenial: age 22 – 37) and a Gen Z (age 7 – 21), but can we trust everything we read and see on the net?
Over the past few years, as an agent conducting weekend Open House inspections, I have been very curious in observing the manner in which prospective buyers assess property values. Many buyers now come in, with guns blazing, ready to inform us (and delivered with a great deal of pride) that they have done their research and it is their opinion that the owner is asking too much for their property “Tell them their dreaming” is one of the common remarks I hear. So where is this now all coming from?
Unfortunately it is coming from the source we tend to place so much faith in – the internet’s on-line property valuations. There are any number of sites ready to provide you with an estimate of the value of any property around the world. Some are free, whilst most are not. Many of these sites are ready to charge you a small fee and provide you a property report on the value of your property, if you are the owner, or the value of any property you are considering purchasing if you are a buyer.
But what is it that we are paying for and how can we trust the information we are getting? Generally the valuation estimates are derived from a bunch of algorithms that mash information from recent sales activity but without giving any consideration to any significant attributes to the subject property. Attributes such as the condition of the property, improvements to the property, aspect of the property, size and age of the house, whether it is located on the waterfront or dry block, etc.
Recently I sampled 2 properties and conducted my own research. One property is one that has never ever been offered for sale since it was built in the mid ’80’s so there is no information available at all about the subject property to influence the estimate of value. The second property is one that has recently been sold but not yet settled. In this last case the algorithms may pick up the last list price which was $1,975,000, but is not guided by the recent sale price.
I sourced information from 3 different sources –
2. www.propertyvalue.com.au – by CoreLogic*
3. CoreLogic – mobile app subscribed by industry users*
*The 2nd and 3rd come from the same source but seem to provide different estimates, as shown below.
74 Sailaway Street, Mermaid Waters – never offered for sale since new
Source 1 – estimated value $711,970
Source 2 – estimated value $1.08m, with a range $840k – $1.32m
Source 3 – estimated value $870k – $1,099,999
Overall range $711,970 – $1,320,000 or 85.4% low to high
93 Gibraltar Dve, Isle of Capri – recently sold close to asking price of $1,975,000
Source 1 – estimated value $1,431,238
(this is less than it’s sale price in Dec, ’14)
Source 2 – estimated value $1.88m, with a range $1.79 – $1.97m
Source 3 – estimate valued $1.725 – $2,199,999
Overall range $1,431,238 – $2,199,999 or 53.7% low to high
The indescrepencies shown here are true for thousands of properties. It is only human nature for buyers to take the lowest price estimate into consideration as it is in their best interests to do so, whilst the owner of the property will have their best interest served by considering the higher end of the estimates.
So my first question is “Why would anybody, who is made aware of this situation, actually consider paying for a report that could be totally misleading?”
My second question is “How can this very broad range of estimated value actually help a buyer or a seller in their individual endeavours?”
It now becomes evident why a buyer who believes the internet online low estimate of value of $1,431,238 (in the case of 93 Gibraltar Drive) would walk into the Open House of a property listed for sale at $1,975,000 and suggest to the agent that he should tell the seller “Tell them that their dreaming!” But this could end up costing the buyer more money if property values continue to move forward.
Conversely, if the seller takes too high an estimate of value, the seller could be sitting on the market for too long waiting to get his/her price and run the risk of the property being over-exposed in the market and consequently allowing buyers to perceive there is something wrong with the property.
Beware – Buyers and sellers who consider ‘online estimates of value’ only as their source of information. It is best to speak with a local reputable agent, or a valuer, who has a more objective estimate of value than a bunch of online algorithms mashing figures that may be irrelevant.