What is Value?

Posted by Daniel Joseph

Over the past few months there’s been a bit of a flurry of sales activity in my street, to the extent that I’m starting to think I may be the common denominator behind this mass exodus. Whatever the reason, these recent sales have provided evidence for the value of quality. Two homes: sold nine days apart, on 700 square metres, 150 metres away from each other and with a $239,500 difference in sales price.

Time for a table:

	28 Balmoral Road, Kellyville	15 Balmoral Road, Kellyville
Sales price	$2,045,000	$1,805,500
Sale date	1 August	23 July
Type	5 bed, 3 bath, 3 car	6 bed, 5 bath, 3 car
Comments	Comparatively smaller dwelling, higher quality, adjacent to park, open plan living	Larger dwelling, northern aspect

Identifying the value of an asset is no easy feat, particularly for an emotion driven investment class like property. Investor Phillip Fisher summed it up well when he said: ‘The market is filled with individuals who know the price of everything, but the value of nothing.’ What the table above indicates is that value analysis needs to go beyond just data. On paper, it’d be easy to argue that the house in column two would attract a higher sales price – surely an extra bedroom and two extra bathrooms would warrant a premium? The reality is buyers with the option to purchase either property chose to spend close to $240,000 more for a smaller property with superior design, quality and location (adjacent to a park).

The unfortunate reality is that a bank employed valuation company seldom offers the nuance required to accurately value a property. I can understand why: value is comprised of factors that aren’t always tangible (and even if they are they can be difficult to quantify) – the open plan, superior quality or a better aspect are just some examples that would incline the emotion driven buyer to pay a premium. Given the buyer pool typically comprises 70% owner occupiers, an investor who can leverage emotion will increase the potential for demand both in tenancy and resale.

Posted by Daniel Joseph, on 15th Aug 2017