Finding accurate and timely comparable sales data is a vital part of your research before purchasing an investment property.
Definition of Comparable Sales Research
The recent selling prices of similar properties within the area, which are used to help determine an accurate valuation estimate of an investment property, with the assumption that your target property will sell at a similar price to other similar properties.
This does not include active listings prices or pending sales, although you can also use these figures within your research, especially if you can take into account other data like average vendor discount.
Historically, property investors have experienced difficulty in accessing reliable comparable sales data, which has led to many buyers investing without completing their necessary research.
Main factors to consider when using comparable sales in your research
The closer the properties are to your target property, the better.
Ideally, comparing a property on the same street or within a few streets is best (within 400m – 800m), but if there have been no sales within that radius, then compare with similar properties in the same suburb.
Also, when you do compare the sales of similar properties, wherever possible, ensure they have similar frontage. You don’t want to compare a waterfront property with a property on a busy road for example.
Time of sale
The closer the time frame of the sale, the more confident you can be of the accuracy of your research.
Ideally look for comparable sales data within the last six months or less, and if you can find examples of comparable sales less than three months ago, you will be following the examples of registered valuers and the financial institutions, who tend to use this time-frame for their own valuations.
This includes the size of the property and the land.
Usually the price of land per square metre is lower the bigger the size of the lot.
Therefore, comparing a 400m2 property with an 800m2 property and simply doubling the price is not a good idea.
Wherever possible, compare a property within a 10% or less variance in size.
Age, build and condition of property
Comparing properties of different ages can be problematic.
Comparing a 10 year old property with a 30 year old one makes an accurate comparison more difficult as the quality of build, materials used and standard of finish will all have a bearing on the valuation estimate.
When you are doing your property investing research, always try to find examples built within five years of your target property,
Pace the market is moving at
When the market is fairly stable, your research will be easier to carry out than if the market is moving and capital growth rates are rising or falling.
In this case, having access to median growth rates of similar properties within the area can help you ascertain an accurate valuation estimate.
A process to follow when using comparable sales data
Property investors will also have their own unique way of carrying out this research. However, this is a process you could consider as a starting point if you are new to property investing.
- Define your criteria for selecting comparable properties
- Assemble a list of comparable properties that meet your criteria.
- Carefully evaluate these properties and choose 5 – 7 that are most similar to your target property.
- Calculate the average value of these comparable properties, which will help decide upon a probable price range in which your target property sits.
Real Estate Investar members can use RP Data or Pricefinder to help determine a market valuation estimate of any Australian residential property.
Why is comparable sales research important?
Armed with comparable sales data puts you in a much stronger position to negotiate with a seller. You can use this research to justify the price you are willing to pay for your target investment property.
Having this data at your fingertips is also invaluable in other ways. For example, it will help you decide which opportunities to avoid that could hamper your chances of building a profitable portfolio.
Real Estate Investar subscribers use our suite of online property investment tools to help them carry out fast and accurate property investment research. For example, here are some of the features that our members have at their fingertips:
- Unlimited market value estimates - work out the current market value of any residential property anywhere 24/7. Use the tools the banks use.
- Take the guesswork out of buying - Whether buying at auction or by negotiation, you'll avoid paying too much - every time.
- Use the latest in-depth, accurate property data that supersedes the incomplete and out-of-date standard property reports.
- How long has it been on the market? How much did it sell for? What did they pay for it? Has it been discounted? Access all this information 24/7.
- Access zoning, land size, features, demographics, population, average days on market, vacancy rates, rental yields, clearance rates and average discounting data.