Gauging True Values — A Property Investor’s Guide

When it comes to property investment, it’s crucial to have the means of accessing information that is as accurate and up-to-date as possible in order to have a true gauge of your property’s value. Lucky for us, Australians have access to some of the best and highest quality property information in the world. Our government collects data on every home sale that takes place, and this information is improved upon by a myriad of property information and analytics providers.

The Hedonic Index

Perhaps the biggest reason that Australians have access to such useful information when it comes to gauging the true values of their properties is that many of our information providers make use of what is known as the hedonic index. This type of index uses principles of hedonic regression, which helps show how the specific characteristics of a property can affect that property’s overall price.

The hedonic index stands opposed to the old median method of indexing, where results are produced based on ‘stratified’ median prices. Stratification refers to the process of grouping houses with certain similarities together in order to create aggregated estimates for the overall market. It’s a more simplistic way of gauging values, and while it still has its uses today, hedonic indices, which make use of comprehensive data on the specific characteristics of residential properties, are far more accurate.

Banks and Real Estate Agencies

When it comes to gauging the true value of your own property, you can employ the services of property information and analytics providers to produce estimate reports based on their own data, and you can even pay to have one of their valuers visit your property in order to provide a full internal evaluation.

But there are other ways to get a valuation on your property. For example, if you’re looking to take out a loan from a bank — using your property to borrow against — then the bank will send its own valuer out to your property in order to come up with a value. What you’ll tend to find, however, is that banks will slightly undervalue your house in order to limit the amount that can be borrowed. They prefer to err on the side of caution and this is reflected in their valuation of your property. If you’re looking to sell your house, on the other hand, you could employ the services of a real estate agent to value your house. Usually, you’ll find that real estate agents will put more value on your house than the banks will, as it is not against their interests to do so.

Overall, however, if you want to  accurately gauge the value of your investment property without the accompanying agenda of either taking a loan out or making a sale, you should employ the use of a property information and analytics provider that makes use of hedonic indices. The hedonic index is considered by academics and experts to be the best and most accurate way of discovering the market value of your property without actually having to put the property on the market.

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