What constitutes market value?

March 22, 2014
Richard Windeyer

 A property’s market value is ultimately determined by what the purchaser is willing to pay for a property, and how much a seller is willing to trade for it.  

As such, it is, strictly speaking, very difficult to buy property below market value.   When a property buyer says they bought a dwelling for “below market value”, what they really mean is that they purchased the asset for a lower price than other properties in the area.  

There are a number of reasons why property buyers may have purchased the property for a lower price than others in the area. Firstly, property prices could have slipped in the area in recent months due to a lack of demand or a surge in supply.  

Secondly, the property may differ from others that are on the market in the same area. The property may not boast the same amenities as the other properties in the area, it may be located on a noisy main road or it may be in poor structural condition.  

Finally, a property owner may need to sell their property in a hurry for personal reasons such as divorce. As such, they may be willing to sell the property for ‘below market value’ in order to rush the sale.  

If you do see a house advertised for a low price, it is very important that you do your research before you purchase and ensure that you aren’t just buying a property because you think it is below market value.  

Some sellers need a quick sale for genuine reasons, others may be selling the property where there have been problems with the house.   If the bank is exercising the power and sale and foreclosing, the property may also be under value.  

It is also advisable to further negotiate. Generally, the seller will be more flexible, especially where a quick sale is imperative.  

There are a couple of things potential home owners can do to potentially purchase a property for less:

  1. Negotiate with the vendor - a buyer may be able to negotiate with the vendor a faster or extended settlement period in line with the vendor’s needs and, by doing so, have money taken off the sale price. Similarly, a home buyer may agree to rent the property out to the vendor for a further six months until the vendor gets their affairs in order and, in doing so, negotiate to have money taken off the sale price. 
  2. Do a door knock – potential home buyers may go around the suburb/s they wish to purchase in and knock on the properties they like. If the occupant is willing to sell, the buyer may be able to negotiate a cheaper price as the vendor will not have to pay agent fees.
  3. Keep your ear close to the ground – You may hear that a family member or a friend is thinking of selling. If you like their property, discuss the option of a private sale with them. If they can avoid the real estate fees, you may be able to buy the property off them for a lower price than it would otherwise sell for  

For more information contact Richard Windeyer on 1800 01 LOAN or click here to "Book a Meeting" 

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