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How to Determine Market Value of a Property?

Updated: Apr 22, 2023

How do you determine the value of the property

How much should you offer for a property?

This is the question everyone will be asking before they submit their offer for a property. But before any property buyer can answer this, you need to know one very critical number - How much is the property worth in the property market?

Any serious buyers should always know what the property is worth, before you make an offer. An offer that is too high, could mean you are overpaying, while a low-ball offer might get you a good deal on very very rare occasions, it can be seen as a rude and insulting offer, and immediately lowers your credibility and chances of being invited to the negotiation table or any other auction events in future.

Determining the market value of a property is a blend of art and science, and the value of two properties can be very different even if the properties are next to each other.

So, let's start from the basics of determining the value for the property. This is how real estate agents and valuers do it.

What is the Value of a property? What is a property worth?

The value of a property in the property market is how much the property can be sold for. It is how much the average buyer is willing to pay for the property. A real estate agent can usually give you an idea of what the property is worth, but, it comes with a catch. How accurate this number is, would depend on a few other factors. And unless you are paying for their assessment, they have a hidden agenda, which we will discuss later.

Now, you might have heard of property valuation. It sounds similar, with similar processes, but that is a different thing.

The value of a property provided by a real estate agent is called a Market Appraisal. It is what property buyers are willing to pay for the property. While a Property Valuation is a value used by financial institutions and legal professions to assess a property's value.. This value MUST be provided by a licenced valuer. For all intents and purposes, a market appraisal is sufficient for you to assess what your offer should be. Proper Market appraisals are usually faster, and much more cost effective than getting a formal Property Valuation done.

How is Market Appraisal done?

Determining the value of a property is a blend of science and art. The more experience the agent is, and the more knowledge the agent has in the area, the more accurate his/her Market Appraisal will be. It is important to get an independent agent, as non-independent agents (including sales agents and anyone who might have a potential conflict of interest) would usually have a hidden agenda in mind, which we we discuss later.

How do you determine the Value of a Property?

This step by step guide will help you understand the process of assessing the property value.

  1. Know the property you are assessing. Find out as much details and characteristics as you can about the property.

  2. Look for other similar properties being sold in the area.

  3. Look for similar SOLD properties in the area. Again, find out as much details and characteristics as you can about those properties.

  4. Have a good understanding of the demographics of the people living in the area.

  5. Have a good understanding of the buyers of those properties in the area.

  6. Have a good understanding of the local property market.

This process will help you determine, up to within 10-20% accuracy of what the property will be sold for. The next section is a lot more advanced and this would help you further fine-tune your numbers.

How to determine a more accurate value for the property?

This next step, is going to make a big difference, to the whole process of determining the property value. This is an advanced topic on its own and we are covering this in this article:

Most property buyers, junior real estate agents, inexperienced buyers agents and remote buyers agents struggle with this critical step as it requires a good understanding of demographics, demand, supply, potential, which only an experienced local real estate agent can.

How accurate are the free Property Market Value websites?

Now, you might have come across websites which claims to provide an accurate value of a property. Are these online valuation websites really accurate?

If you have read and understood the process above, you would realise, determining the market value of a property in the property market is quite an involved process. It is a combination of:

  1. science;

  2. maths;

  3. the real estate agent's understanding of the property; and

  4. the real estate agent's experience in the property industry.

The first two steps are easy. It involves averaging the sold prices for the properties in the area, which computers can do in seconds. While the last two steps to refine the number, involves a good understanding, appreciation of the property, and ultimately the agent's experience in the real estate industry, to fine tune this number.

The first half can usually be done easily. With enough data, a person with elementary Excel spreadsheet knowledge would be able to do it within seconds.

The critical second half is where the fun is. This is where you differentiate the rookies from the veterans. You need to invest hours and even days to understand the area, understand the property, buy data and information, to get answers to the questions. Then, blend the answers to the number derived in the first half. As you would have realised, it could be days before you derive at a number, and this is a art which probably no machines can do.

Now, given that there are over 10.6 million residential properties in Australia (ABS data), I doubt if any free platforms would have the resource to invest in humans to provide the numbers. Remember, the person would have to spend days and years to derive the value for each and every residential property? It would take anyone a few years to put together an accurate value to each and every property in Australia. And, when the numbers are determined are published, the numbers would be significantly different, as prices, buyer demographics property market conditions would have changed.

In short, the free market value websites are good to serve as reference, to give you a very rough idea of property prices. These number have often been proven to be WRONG by hundreds of thousands of dollars. Free market valuation websites are not something which reputable real estate professional like good buyers advocates / buyers agents would trust and use.

How accurate are the market appraisals from real estate sales agents?

So, now we know we really need the experience of real estate agents to understand the value of a property. But should we trust the real estate sales agents? What should we know before we decide if we should trust their number?

There is no denying that most real estate sales agents attempt to make an honest attempt to put a value to a house. But we should also understand that many real estate sales agents are driven by TWO Needs. The need to get a listing and the need to sell.

The Need to Get a Listing

The need to get a listing is one of the critical Key Performance Indicators (KPIs) of most sales real estate agents in the industry. Their performance is determined by the number of new properties they can list in the market. And in order for real estate sales agents to do that, they have to entice property owners to let them list and sell their properties.

To a typical property owner, what else could be a better incentive than to CONvince home owners that their properties are worth a premium, $200k above everyone else, and to promise property owners that only they have the ability to sell their property for top dollars.

With this understanding in mind, you will realise it is very common to get an inflated property appraisals from the sales agents, especially if they have a vested interest in enticing you to give them an exclusive listing for your property.

How accurate are the Statement of Information provided by the real estate agents?

Now, on the flip side of the same coin. Now that the sales agent has successfully enticed you and start selling your property, their next job is to list the property and generate enough buyer interests in your property. In some states like Victoria, they also have to release what is known as a "Statement of Information" (SOI) or a price guide. It is supposed to declare what your property is worth, along with some recently-sold comparable properties, to justify the list price. Or at least, that is the idea why these "Statement of Information" were made mandatory.

Now, remember, as a sales agent, they need to generate enough interests in your properties. What other ways are there to generate interest, than to CONvince buyers that the same "good property" can now be bought for a low, cheap-than-normal price? Sales agents almost always publish a lowish price in the SOIs with the hope to get more buyers' interests. So this helps you understand why some SOIs are a few hundreds of thousand dollars lower than what the property will be realistically sold for. This practice is called underquoting. This is very misleading and it is why state authorities have been clamping down on this practice of underquoting.

But wait!!

Here is the fun part... This is NOT to say all Statement Of Informations are inaccurate. There could be a genuine reason why the property price stated in the SOIs is different. The property might be in a flood zone. It might have some fire damage, or termite infestation, mold infestation to justify the low price. Or it might have a gold plated toilet, and that in itself is worth $100k over other properties. Without an onsite inspection by an experienced, independent real estate professional, it is almost impossible to determine if the SOI is realistic.

So, where can we get an accurate idea of the property price?

So, if everyone has a vested interest in providing the property pricing, and everyone has a reason why the property price should be a lot higher or a lot lower than others. How can a novice buyer know what to pay for?

This is where an independent appraisal of the property will come in handy, if you can afford it. You could consult a genuine independent Buyers Agent / Buyers Advocate. It could cost you a couple of hundred dollars for the report, and take them a couple of hours to analyse the property, research on the property and compile a Competitive Market Analysis (CMA) report. Or you could engage a licenced property valuer for about $600 to have a formal inspection and valuation. Whoever you decide to engage, getting a formal independent appraisal of the property is less than 0.02% of the property price. That couple of hundred invested in the appraisal can save you from overpaying by hundreds of thousands for the property. Or it can save you from unnecessary heartbreaks.

Independent Property Appraisal

We understand the anxiety buyers goes through to attempt to determine a price for the house. Our low-cost property appraisal service is designed to be a good compromise between a formal valuation from a valuer, and the questionable numbers from the Statement Of Information, the free tools and public domain information. We will review the property, research the property, location, potential and provide you with an accurate price range for the property.

History has shown that our valuation to be within 10-15% of actual sold prices 98% of the times. We are so confident of our appraisal, that we will guarantee our appraisal with a money back guarantee. If our appraisal is more than 15% of the SOLD price, you will receive a full refund for the report No questions asked. No risk to you.

Don't pay over $600 for a property valuations.

So, if you’re buying your property or selling your property, consider speaking to one of our senior buyers advocates, to get an independent assessment of the property. Our agency principal, Rayson, has over 20 years of real estate buying, selling, and investment experience and would be happy to give you a hand.

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