Would You Really Overestimate Your Home’s Value?

Many people overestimate how much their home is worth.

Are you one of them?

Studies show most homeowners overestimate their property’s value. That might sound strange, given we live in the most expensive part of Australia’s most expensive city, and stories of housing affordability make daily headlines. But it’s something we notice on a daily basis.

On the flip side, however, we also see a lot of homeowners who drastically underestimate what their home is worth too. And, truth be told, sometimes even the seasoned pros do as well.

With that in mind, we thought it was time to take a look at why people overvalue their homes so consistently and what you can do to understand your home’s real market value.

The laws of supply and demand – and a few other things, too

It should go without saying that property values are set by the laws of supply and demand. That means the value of a property depends on how much people are prepared to pay.

That sounds very straightforward, but there’s a bit more to it than that. That’s because the laws of supply and demand also get impacted by several other factors too.

• The number of buyers in the market. The more buyers in the market looking for a property like yours, the more competition for your home there will likely be. This directly contributes to whether prices go up or down.
• The number of other homes available. A high number of buyers and little choice almost always leads to price growth. Few buyers and lots of choice has the reverse effect.
• Comparable sales. How much similar homes in your area sell for can have an enormous impact on your sales prices because it sets people’s expectations around what they’ll need to pay.
• Features and ‘wow’ factor. Just because a property is similar to another one doesn’t mean it will sell for the same price. A better aspect, and features such as a home office, architectural design or even the way the light enters your home can impact what people will pay.
• Your sales campaign. How your real estate agent markets your home (e.g. off-market, auction, expressions of interest or private treaty) and who they market it to often has a major say in how much your home sells for. More on that below. The way you choose to present your property can have a major impact too.
• General market conditions and confidence. Interest rates, inflation, unemployment, the value of the share market and the value of the Australian Dollar are all outside of your control. Still, they can all influence what people will pay.
• The time of year. Different times of year can attract more or less buyers and influence how bullish or bearish buyers will be when it comes to negotiating.

Why people overestimate the value of their homes

With so many factors impacting a property’s value, it’s easy to see why people can get it wrong. But why they’re inclined to overestimate rather than underestimate often comes down to a matter of emotion.

People often feel their home must be worth a lot because it means a lot to them. Homes are where memories are made. It’s easy to become nostalgic and sentimental and assume others will have the same feelings towards the property you do.

Another reason people overestimate the value of their home is that they have put so much into it in the form of renovations.

Renovations can pay for themselves and even add considerable value to a home, but that’s not always true.

Besides, your home will usually be geared up for how you live, and that may not be exactly how someone else wants to live. The features you love and use every day – an outdoor spa, a putting green, a pool, even an exotic garden – may be seen by buyers as something they need to change or get rid of. So your favourite thing about your home may be detracting from its value rather than adding to it.

A final reason we’ve noticed many people tend to overestimate their home’s value is because they hear media reports that the property market has risen by a certain percentage, so assume this applies to them.

However, as we’ve often said, the property market doesn’t act in unison. Just because the median home value has risen, say, by 30% doesn’t automatically mean your home is worth 30% more, too. There are markets within markets in Sydney’s eastern suburbs, and how much your property’s value has changed will depend on many factors.

Why you shouldn’t rely only on lender valuations and general guides

When people are looking to buy a home or refinance their existing home loan, they often get a bank valuation of how much their home is worth. Our experience is that these are often far too conservative – based on worst-case scenarios rather than what a home will really sell for in the current market.

A growing number of websites, including Domain and realestate.com.au, also offer to track your home and tell you what it’s worth based on the latest sales data. We even offer our own property estimation report through the Ben Collier Team website.

These can be great guides, but they shouldn’t be treated as gospel. The only way to get a relatively accurate reflection of your home’s market value is to have it appraised in person by a real estate agent who understands your local market.

That said, not all appraisals should be treated equally, either. Some agents tend to tell people only what they want to hear in an effort to get them to sell. This approach may win them short-term work, but it ultimately leads to a dissatisfied client.

Our approach is always to provide a realistic market value.

The marketing campaign still matters…

Finally, even once you’ve had your home appraised, so much can change in the time it takes to sell. The market can turn – for better or worse – other homes can come onto the market, or buyers can appear or disappear.

From these base market conditions, it’s also your real estate agent’s campaign and their ability to negotiate or create competition that often matters most.

Want more?

If you’re interested in receiving a market appraisal for your home in Sydney’s Eastern suburbs, get in touch.