How much is my property worth?

This is probably the most common and yet one of the most important questions that always pops up when I talk to sellers.

There are many factors at play when it comes to pricing and determining how much a property is worth.

How much a property is worth is also commonly referred to as the fair market value among property agents.

The fair market value is defined as the price that a serious buyer will pay for a property at this current point in time.

Truth be told, the fair market value is something not even the most seasoned property agents can always get right.

If experienced property agents are not always able to get it right, then what is the likelihood of a typical seller getting the fair market value right?

And if you take into consideration that most typical sellers will only sell one or two properties in their lifetime, where will they draw the experience to determine the worth of their property from?

Besides the lack of selling experience, sellers also face another hurdle when it comes to pricing their property for sale.

This hurdle is the emotional attachment that they have to their property.

In most cases, they are probably the ones who will pay the highest for their own property and this inevitably clouds their judgement.

If there is a mismatch between what the property is actually worth (fair market value) and what the seller thinks it is worth, then the chance of a successful sale is obviously going to be very low.

Interested to understand how I went about determining the fair market value of a property that I assessed recently and the other important signals that I looked at to determine the possibility of a successful sale?

Grab a pen and paper and read on.

1. Singapore property pricing case study

Fortunately or unfortunately, I have seen my fair share of flawed pricing judgement and misunderstanding of the property market over the years.

From HDB flats to uncompleted condos (subsale) to completed condos (resale) and landed houses.

Such situations inevitably lead to frustrations and questions such as:

• Why is there no one coming to see my property?
• Why is there no offer for the property?
• Is my property agent doing his/her work?
• What is happening?

I have had to face these questions from such sellers many times. These sellers were already in the midst of selling their properties through other property agents before they got in touch with me.

In fact, I received one such call very recently that prompted me to pen this.

The seller had been trying to sell her private property (1-bedroom unit) for the last 4 months and was perplexed as to why she had not received a single offer.

Her condo was fairly new and had extensive renovation that had cost more than $100k.

After the 3-month exclusive agreement with the first property agent had expired, she decided to change to a second property agent.

There was not a single viewing at the end of the 4th month and that got her really worried.

This was because both the first and second property agent said her property was very nice.

My property is very nice and I am not looking to make a profit at all. I only want to take back my renovation cost. Do you think my second property agent is neglecting me and not giving my property any attention? How can it be that there is no single viewing

I asked if her property agents had provided her with any market update and feedback of what was happening and she said no.

The first thing that came to my mind was that this seller did not know or understand the property market and had likely gotten her price wrong.

After getting some basic info about her property, I told her to give me a day or two to look a bit deeper into her situation and then I would share my take with her.

2. Why is her property not moving?

I started by taking a look at the advertisement put up by her second property agent to see how the property looked.

The property certainly looked nice from the photos and the advert was well written and presented.

And then I proceeded to look at the whole condo in greater details.

2.1 Sales transactions in the condo

This is a completed condo that has a mix of one to four-bedroom units.

In year 2018, two 1-bedroom units were sold at $740,000 and $755,000. This meant that in 2018, one unit got sold every 6 months.

In year 2019, only one 1-bedroom unit had been sold thus far at $725,000. As I write this, we are approaching year 2020.

This meant the rate of sale had gotten worse as only one unit was sold in 12 months.

Considering that this condo has two hundred fifty 1-bedroom units, if only one or two units of 1-bedroom unit gets transacted per year, what does it tell about the demand for the 1-bedroom units in this condo?

Or perhaps there were very few sellers?

The next set of data would shed more light on this.

P.S. You can get caveated sale transaction data without unit numbers free of charge from the URA website. All the analysis I share with my clients come with unit numbers and includes pre-caveated sales transactions (if applicable).

2.2 Sale supply and demand in this condo

At the point when I did my analysis, there were a total of twenty-nine adverts pushing 1-bedroom units in this condo for sale on one of the more popular property portals in Singapore.

Assuming half of these adverts were duplicates, it still left us with close to fifteen units trying to sell on this one property portal alone.

There could possibly be some units available for sale on other platforms which would then add to this set of numbers.

Since there were at least fifteen units available for sale, the lack of resale activity in this condo was not due to a lack of supply.

With only one 1-bedroom unit transacted in the whole of 2019 and fifteen units currently available for sale, it showed that there is a strong lack of demand for 1-bedroom units in this particular condo at this moment.

2.3 The property’s valuation

This seller who contacted me had been trying to sell her property at $838,000. The price was apparently higher in the beginning.

Due to the last done price of $725,000 for a 1-bedroom unit in 2019, most banks were only prepared to provide a valuation around this figure.

Even though the seller had spent more than $100,000 to renovate her property, it would be extremely unlikely for the banks to grant a valuation that would match the price that she wants.

This is simply how valuation works for resale – the current valuation unit of the unsold units is usually pegged to the last done.

If the valuation is let’s say $750,000 and a buyer buys a unit for $838,000 the buyer’s loan will only be pegged to $750,000.

The buyer will not be able to borrow whatever is in excess of $750,000.

The excess of $88,000 in this case would have to be paid for using cash. This is also known as cash over valuation (COV).

How many buyers would be happy and willing to fork out cash over valuation that is more than 10% above the valuation price in the current mark?

Considering there were at least fourteen other units available for sale.

Would you as a buyer?

Think about it.

2.4 How much are the neighbours asking for?

Next, I proceeded to look at how much the neighbours within the same condo development were asking for their 1-bedroom unit.

The cheapest unit in the condo development was asking for $738,000 and prices went up gradually from there.

As this was a fairly new condo, most of the units available for sale looked fairly similar on the inside.

Would you prefer to buy and pay for what a seller has designed (& stayed in) or would you prefer to pay a lower price and imprint your own design?

2.5 How is the competition from the district?

Right after that, I zoomed out from the condo to assess the district that it was in.

Based on the persona of a buyer looking for a completed 1-bedroom unit in that district, there were 225 units available for sale.

These included both direct and indirect competition.

Moving away from the supply figures, I looked into the resale transactions done for 2019 in the district.

A total of nine 1-bedroom units changed hands, of which two particular condo developments accounted for three and four transactions respectively.

3. The unpleasant truth

From the basic analysis done, it showed,

• lack of demand for 1-bedroom unit in this condo
• the unit was overpriced and faced valuation challenge
• there was very strong direct competition from other units in the same condo and indirect competition from other similar units within the same district

The lack of other X factors meant that the unit is highly likely to stay unsold for a prolonged period unless certain variables change.

Without even looking at the unit, I knew that there was no way the seller was going to get her price.

When I shared my analysis with her, it took her by surprise and instantly answered a lot of questions in her mind.

Unfortunately, none of the property agents that she had worked with shared any of the above with her.

They basically just checked what price she wanted and got on with it without validating if the price was right or wrong.

Having shared the case study above, I must point out that this process may not necessarily be the best approach for each and every property.

We always have to look at the uniqueness and characteristics of the property in question.

Depending on the situation, we may have to dive deeper into the property’s attributes. For example, landed properties have a lot more attributes and variables to consider and look at.

What about you?

How do you determine the fair market value for your property?