Real estate’s true value is decided by one key factor

There is one simple way to discover an accurate price of a piece of real estate, and it’s not what you think it should be.

Property prices have caused pain, frustration, cheers and celebrations in recent years, depending on whether you’re a buyer or a seller and whether the property’s in a thriving or struggling city.

Since the pandemic, some sellers have enjoyed huge gains, while others have suffered losses, and that’s just at a capital citywide level.

In every suburb, and even every street, there are big price differences in what real estate sells for.

Land size, home size, fixtures and fittings, bedrooms, bathrooms and views all play a role in determining the value of a piece of property.

However, what you personally think a property is worth has very little impact on its true value.

Many factors determine property prices, but one is stronger than the rest. Picture: iStock

It’s not worth more because it means more to you, has sentimental value, had a recent renovation, some landscaping work or fresh coat of paint.

The real value of any piece of real estate is defined by one important factor: what somebody else is prepared to pay for it.

Real estate agents and property valuers have the expertise and experience to deliver educated guesses, but they cannot always get things right.

Experts often say auctions are the most transparent way to buy and sell a property, because they pit all potential buyers against each other at once. This can work for those who can stomach the stress – both buyers and sellers – but is also impacted by outside factors such as the economy, interest rates, fear and greed, and the timing of property price cycle.

In the past three decades I’ve bought or sold almost a dozen different properties, either own homes or investments, and can honestly say I’ve stuck to the mantra that the true value of real estate is what somebody will pay.

Having this mindset takes a lot of stress out of both buying and selling. I haven’t had a property sit on the market for months on end waiting for that elusive buyer prepared to spend big money. And I haven’t died wondering at auctions or private sales when negotiating purchase prices.

In my area lately there have been a few properties sitting on the market for several months, apparently with no takers.

One finally sold last week after about four months of sitting vacant. That’s good news for the sellers, but sometimes holding out for a better price can cost you other opportunities, or result in getting a lower price because the local housing market’s cycle is heading south.

There are plenty of ways to give yourself a helping hand in determining the value of a property.

Some are human – real estate agents, valuers and your own legwork by wandering around a suburb or region and checking sales.

Others are digital, with free online valuation tools available through sites including realestate.com.au and aussie.com.au. Be prepared to sign in for a free account and provide a few details, but they can give you a handy estimate.

However, in the end, a property’s true value is purely what a person is prepared to pay for it. Simple, but forgotten by many.

Originally published as Real estate’s true value is decided by one key factor