Yesterday I walked into a home in Bedfordale.

The automated valuation system — the one most homeowners check online before they make any decision — said the property was worth somewhere between $1.2 million and $1.3 million.

By the time I’d finished my appraisal, the figure I gave the owners was $1.8 million to $2 million.

That’s not a small gap. That’s not “the algorithm was a bit off.” That’s the algorithm being wrong by roughly half a million dollars on a single home.

And it happens all the time.

After more than two decades of selling property across the Perth Hills — Bedfordale, Roleystone, Kelmscott, Mount Nasura, Mount Richon, Seville Grove — I can tell you the question I get asked most often is some version of: “What’s my home really worth?”

The honest answer is that there is no single number. Your property’s value is the result of a long list of factors, most of which the algorithms can’t see, most of which sellers don’t know to look at, and most of which the average agent won’t tell you about.

This article is about those factors. The ones that actually move the price up or down. The ones that determine whether you walk away with what your home is genuinely worth, or whether you leave six figures on the table.

It’s also about something most sellers never think about — the difference between an appraisal that flatters you and an appraisal that’s honest with you. Because at the end of every campaign, only one of those leads to the right outcome.

Let’s get into it.

What Actually Happens in the First 60 Seconds of an Appraisal

Most articles on this topic say agents look at “comparable sales” or “land size” first. That’s not what happens.

The appraisal starts before I even get out of the car.

I drive up to the home and look at the street appeal. Has the front been maintained? What does the roof look like — do the tiles need work, is the ridge capping cracked, are the gutters rusted? Has it been freshly painted recently or is the paint tired? Have the eaves
gone mouldy? These things are visible from the road and they tell me an enormous amount about the property before I’ve even walked through the door.

Then I step inside, and I’m going to be honest with you here because most agents won’t. The first thing I’m doing is asking whether the home smells.

It sounds funny, but you would be surprised how often this matters. People with pets, or people whose cooking habits involve a lot of certain spices, or households where things just haven’t been aired out properly — they don’t notice it anymore because they live there. But a buyer walking in for the first time absolutely notices, and most agents won’t tell you because they’re too frightened of offending you.

My job is to actually get you to a point where we can sell your home for the best possible price. Sometimes a blunt conversation right at the start is the difference between a good price and a great price. And there is a difference.

From there I’m looking at presentation. Is the house tired? Does it need a fresh coat of paint? Are lightbulbs missing? Is there clutter everywhere? How do the bathrooms and kitchen look — not whether they’re new, but whether they’re functional and clean? Are there small jobs around the place that have been left undone?

Every one of those things affects price. And every one of those things is fixable, often cheaply, if the owner is willing to do the work.
The price I’ll quote you depends partly on what you’re willing to address before we go to market — because once buyers see a home online, you don’t get a second chance at the first impression.

Why the Online Algorithms Get It So Wrong

Let’s go back to that Bedfordale home from yesterday.

The automated valuation system gave a figure between $1.2 and $1.3 million. My appraisal was $1.8 to $2 million. What did the algorithm miss?

A lot.

The square meterage was wrong on the system to start with. That’s not unusual — these systems pull from old council records or guess based on land size, and they get it wrong constantly. From there it just compounded:

The home had a wonderful three-phase powered workshop — significant value to the right buyer, completely invisible to an algorithm.

It had a beautiful playground-style pool, well presented and maintained.

It had views across public open space, down the valley, all the way to the coast. Algorithms can’t see views.

The kitchen was enormous — well beyond what you’d expect at that price point. Algorithms count rooms, not size or quality.

And the overall presentation was spot on. Light, bright, clean, well looked after. That doesn’t show up in any database.

This is why I tell every homeowner the same thing: an online estimate is a starting point at best, and a dangerous trap at worst. The algorithms work by averaging sales of nearby properties with similar bedrooms, bathrooms, and land size. They have no idea whether your home backs onto public open space or onto a busy road. They don’t know your kitchen was renovated three years ago. They don’t know whether the property is dead flat or sits on a steep slope that would cost a fortune to develop. They don’t know whether mains water is connected to your acreage block, which is rare in this area and matters enormously.

These tools can be 10%, 20%, sometimes 50% out either way. And the people who get hurt by that are the people who plan their next move based on those numbers.

Why Most Sellers Get Their Own Price Wrong

Here’s something I see constantly, and it’s worth being direct about because nobody else will tell you.

Most sellers who overprice their home aren’t doing it because they don’t understand the market. They’re doing it because they’re not looking at the home from a buyer’s point of view. They’re looking at it from the point of view of what they want to buy next.

They’ve worked out their budget. They’ve decided they want to move closer to the coast, or to a nicer suburb, or to a bigger home. To make that move work, they need, say, $1.5 million. So now in their head, $1.5 million is what their home is worth — because that’s what they need it to be.

Then friends come around and say “It’s an absolutely beautiful home, don’t let the real estate agent undersell you, stick to your price.” That’s not strategy. That’s hope. And hope has never been a strategy in real estate.

It gets worse from there. They go online and the automated valuation conveniently agrees with the number they want. Or they start looking at bridging finance, and if they’re borrowing less than 70% LVR, the bank will do a “desktop valuation” — basically taking the
agent’s word or the algorithm’s number and rubber-stamping it. At 50% LVR, the bank will tell them just about anything they want to hear to put the finance in place.

So now they’re emotionally and financially locked in to a price that has nothing to do with what their home is actually worth in the market. Here’s the hard truth: the real estate agent isn’t buying your home. The seller isn’t buying your home. The buyers are buying your home.

And if you list at a price the market won’t pay, what happens is you help every other home in the area sell before yours does. Buyers compare yours to what else is available, and they walk away saying “the one down the road is better value than this one.” That’s the most
painful way to spend a year trying to sell.

What Buyers Are Actually Doing in Their Heads

This part is going to be different from anything you’ve read elsewhere on property valuation, but stay with me, because it’s the most important section of this article.

What a buyer pays for your home has almost nothing to do with logic.
There are three parts of the human brain involved, and they work in this order:

The reptilian brain — the safety check.

When a buyer walks into a home, the very first thing happening is a primitive question: do I feel safe here? Could my family be safe here? Is there anything threatening about the space?

Most buyers walk into the kitchen first. They stand there. And in those first seconds, they’re making a fight-or-flight assessment of whether this is somewhere they could imagine themselves living. If the answer is no — for any reason, even reasons they can’t articulate — they’ve already made up their mind. They might walk through the rest of the house politely, but they’re not buying.

This is why presentation matters so much. A cluttered, dark, smelly, neglected home triggers the wrong response in the wrong part of the brain, and you’ve lost the buyer before they’ve even seen the bedrooms.

The mid-brain — hierarchy and prestige.

Once safety is established, the next layer kicks in. Can I see myself entertaining friends here? Is this the kind of home I’d want people to see me in?

This is the buyer mentally placing a barbecue on the deck, picturing friends arriving, imagining the comments they’d hear. “What a beautiful home. Imagine living up here in the hills.” If your home can let them rehearse that conversation in their head, you’re in the
buying zone.

The neocortex — justification after the sale.

This is the third stage, and it’s where most real estate agents get the whole process backwards.

The neocortex is the logical brain, and it gets activated only AFTER the buyer has decided emotionally to buy. Once friends start asking “you paid how much?”, the buyer needs justification — the playground pool, the workshop, the kitchen, the ducted air-conditioning, the walk-in robe, the ensuite.

A huge amount of real estate marketing is aimed at the neocortex — bullet lists of features, technical specifications, room dimensions. That stuff is for justification AFTER the sale, not for triggering the sale itself. Agents who lead their marketing with feature lists are talking to
the wrong part of the brain entirely.

The sale happens at the reptilian and mid-brain level. The features close it out. One more observation, and I’ll say it carefully because the point matters more than the framing: the buying decision in most family homes is heavily influenced by the woman in the household. And in my experience, women tend to put themselves last. They walk the home in this order: kitchen first, then the children’s bedrooms and bathroom, then the laundry, and finally — almost as an afterthought — the master bedroom.

Then outside, looking at the workshop, the pool, the space for kids, the lifestyle features. If your home doesn’t work for the family at those three checkpoints, the features list at the end won’t save it. And if the agent doesn’t understand any of this, they’re guessing.

The Truth About Renovations and Return on Investment

This came up yesterday at that same Bedfordale appraisal. The owners asked me whether they should put in a third bathroom upstairs, off a teenage retreat.

My answer is the rule I give every seller: if you’re going to stay in the home for the next 5 to 10 years and you’re going to use the third bathroom, then yes, build it. Get value out of it yourself.

If you’re going to be selling in the next 12 to 18 months, don’t bother. A bathroom build is going to cost you at least $30,000 and you won’t get extra money for it at sale.

The same logic applies to most major renovations. Expensive bathrooms and kitchens, swimming pools — if you’re about to sell, these are usually money pits. You won’t recover what you spend.

There’s one caveat: if your bathrooms or kitchen are so rundown that a buyer would need to renovate them immediately, then they ARE costing you money — because buyers are mentally subtracting the cost of those renovations from what they’d pay for the home. In that case, doing something is better than doing nothing. But if your bathrooms and kitchen are functional and clean, leave them alone.

So what should you actually spend money on before selling?

Paint. Dollar for dollar, fresh paint is the cheapest and highest-impact thing you can do. It lifts a tired home faster than anything else.

Lighting. The old fittings in most homes make them look darker. A pack of 10 downlights from Bunnings and an electrician to install them — maybe $1,000 total — will make your home feel modern, bright, and warm throughout. The difference is immediate.

Flooring. Not always essential, but if floors are worn or dated, replacing them isn’t always expensive and can dramatically lift the feel of the home.

Decluttering. This costs nothing and changes everything.
If your home is small and you don’t have a shed or garage to store excess belongings, take the smallest bedroom and turn it into a temporary storage room. We don’t need to photograph that room. Buyers understand — most of them are in exactly the same situation
when they move. Decluttering is the single most underrated thing a seller can do. It makes rooms feel bigger, lighter, and easier to imagine living in. And it costs you nothing but time.

Location Within the Suburb Matters More Than Most People Realise

Every property article you’ve ever read will tell you “location, location, location.” But almost none of them explain what that actually means at a street level.

A suburb isn’t one homogeneous market. It’s multiple markets sitting next to each other, often with significant price differences.

Let me give you two real examples from suburbs I work in every day.

Bedfordale. On the Wallangara side, you can have a 4-bedroom, 2-bathroom home on 2 to 3 acres that’s worth around $1.4 million. Cross Albany Highway to the newer estates — Churchman Brook Estate or Waterwheel Ridge — and the same 4×2 layout on a 3,000 to
4,000 square metre block is worth around $1.8 million.

Same number of bedrooms. Same number of bathrooms. Smaller block of land. Higher price. Why? Because the newer estates have different infrastructure, scheme water, different buyer demographics, easier access. The Wallangara side is acreage with bore water and a
different lifestyle entirely. They’re different markets, and buyers approach them differently.

Mount Nasura. A 4-bedroom home at the bottom end of the suburb, near Albany Highway, will sell for around $1 million. Move that same home to the top of Mount Nasura — Rushton Terrace, Blackwood Drive — and it’s worth around $1.5 to $1.6 million. Same home. Different street. $500,000 difference.

This is why an algorithm averaging sales across “Mount Nasura” or “Bedfordale” will get it badly wrong on either side of the spectrum. The data points exist, but the algorithm treats them as one market when they’re really four or five.

A local specialist knows which pocket of the suburb your home sits in, which buyers are likely to be looking there, and what genuine comparable sales actually apply to your property. That’s the part you can’t get from a website.

What Happens When You Overprice — and Why “Negotiating
Down” Is a Trap

Sellers and a lot of agents think that listing high gives “room to negotiate down.” Here’s what actually happens.

The rule of thumb in real estate is that if you’re not within 5% of where the market deems your property to be priced, you’ll get very few enquiries — and if you’re 15 to 20% over the market, you’ll get almost no genuine offers.

Yes, you’ll hear stories about someone who got lucky and an over-market price stuck. But luck isn’t a strategy. 99.9% of the time, the over-priced home sits. So 30 to 40 days in, the agent suggests a price reduction. Let’s say 5%. Now you’re only 10-15% over the market. Same problem. The market knows you’ve adjusted, so they’re
watching you, but you’re still not in the buying zone. The reports that good agents can show you will tell you how many buyers have saved your property on portal websites — a strong signal that they like the home but don’t see the value at the current price.

Another three or four weeks pass. You’re at 60 days. You drop the price again.

Now everyone’s seen the home online for two months. There are websites — old-listings- style tracking services — that record listing history. Buyers actively use them to identify aged listings and negotiate harder, because they know how long you’ve been on the market.

And then there’s the negotiation trap. If your “strategy” was to list high and negotiate down, what you’re actually doing is negotiating with one buyer in isolation, with no competition from other buyers.

Here’s how it typically plays out:
You’re asking $1.2 million
The buyer offers $1 million
You meet in the middle at $1.1 million
They counter $1.05 million
You meet at $1.025 million

Each round halves your position. That’s a brutal way to sell a home — and it doesn’t account for the stress, the time, the months of keeping the home immaculate for inspections, th disruption to family life.
It gets worse in a declining market. If you’ve been on the market for 60 to 90 days and prices have dropped another 5%, you now probably have to drop a further 10% below true market value just to get people interested again. Overpricing in a falling market doesn’t just delay your sale — it compounds your losses.

The lesson is simple. The first 30 days of a campaign are when your property is freshest, most-watched, and most able to generate genuine competition. Waste them at the wrong price and you can’t get them back.

Marketing — and What 10-15% Looks Like in Real Money

How much of the final sale price is driven by HOW the home is marketed, versus WHAT the home actually is?

Honest answer: if your agent doesn’t understand the rules around marketing, or thinks marketing is a waste of money and a few iPhone photos thrown online will do the job, you’re going to leave 10 to 15% of your home’s value on the table. At minimum.

On a $1.2 million home, that’s $120,000 to $180,000. On a $1.8 million home, it’s $180,000 to $270,000. That’s not small money. That’s family-changing money. Here’s why. Almost every buyer in 2026 starts their search online, and the first thing they do is compare your home to every other home for sale in your suburb. If your photos are bad — dark, grainy, badly framed — they scroll past in under three seconds.

You don’t walk into a beautiful hotel or a new display home and find the lights switched off. The same logic applies to your home when you’re selling. It needs to be light and bright in every single photo.
The biggest thing most sellers miss is video. A proper video walkthrough — with the agent describing what the home is like and what makes it special — does what photos can’t. It lets buyers experience the home before they ever step inside.

The other thing most sellers don’t think about is the floor plan. Not a photocopy of something thrown together on the agent’s iPad. A properly drawn floor plan that shows bedrooms with furniture in them, living areas with sofas, the family room with the TV in
place.

Why does this matter? Because I’ve personally listened to buyers walk through a home with a good floor plan brochure and say “Mary can have this bedroom, John can have this one. We could put the wall unit here. The TV can go over there.”

That buyer has just bought the house. They’ve placed their belongings in it mentally. Everything from that point is just bringing the deal together. The brochure itself should be on cardboard, not paper run off the agent’s inkjet at home. When buyers walk away with a quality brochure, the home stays with them.

Miss these elements and you don’t get maximum competition between buyers. And here is the line every seller should remember:
You don’t get the best price for your home in isolation. You get it with competition between buyers wanting your home.

That’s the entire job of marketing. Not to “expose” your home to the market. To create competition between buyers who want it.

The Hardest Truth — Choosing Your Agent

I’m going to be direct with you here because this is the part where most sellers get it wrong.

In Western Australia, becoming a registered real estate representative takes an 8 to 10 day course. That’s it. After 8-10 days, someone is qualified to sell your family home — your biggest financial asset — and most offices then hand them a desk and a phone and say “good luck.”

Of the 1,800 to 2,000 agents trained in WA each year, only about 5 are still in the industry by the end of Year 1. After 5 years, only 2 or 3 of those are left. This is a hard business if you’re not willing to keep working at it.

So the real question isn’t whether your agent is registered. It’s whether they’re any good.

And here’s a brutal truth that sellers don’t hear often enough: there’s a big difference between “20 years of real estate experience” and “1 year of experience repeated 20 times.”

Plenty of agents got their registration, learned the basics in their first 12 months, and have done no real training since. They’re not better than the 5-year agent who’s been studying their craft. They’re just older.

The psychology and the emotional side of real estate — the three-brain stuff we talked about, the buyer behaviour, the negotiation skills — these are things any decent agent should be trained in. Not “maybe if I have time.” Must.

I still train every morning. I’m reading something or listening to something that makes me sharper, gives me an edge in the marketplace, helps me get my clients a better price. The day I stop doing that is the day my clients start losing money. Most sellers pick the agent who quotes them the highest price. That’s the single most expensive mistake you can make. Because the agent who told you what you wanted to hear at the appraisal is the same agent who’ll be sitting in front of you in 90 days, telling you to drop your price because “the market has changed.”

Before you choose an agent, ask each one these questions and compare the answers carefully:

1. What evidence are you using to support your price recommendation? Look for recent comparable sales, active competition, buyer enquiry levels, real market data — not opinions.

2. How will your strategy create competition between buyers? Exposure alone doesn’t create premium prices. Competition does.

3. How many of your recent listings have actually sold using the method you’re recommending for my property?

4. If your recommended price or strategy doesn’t work, what’s the plan?

5. What do you think buyers will dislike about my property — and what’s your plan to overcome those objections?

6. If this was your own home, would you use the same strategy you’re recommending to me? The answer should be immediate and confident.

7. What happens if the first two weeks don’t go to plan? Ask for a specific answer, not a vague one. The first two weeks are critical.

8. What is the biggest mistake sellers are making in today’s market? This reveals how well the agent understands current conditions.

9. What are you going to do differently that could help me achieve a better result than other agents? Look for a genuine strategy, not promises about photos, advertising, or company size.

10. What training have you done recently — and who have you been mentored by — to keep improving your craft?

The best agents focus on your outcome. Not their awards. Not their office size. Not their personal brand. Your outcome.

And ask yourself this question — the one that matters more than any of the others: Is this the person I want sitting in front of me at the final negotiation, telling me this is the most I’m going to get for my home?

If you can’t trust that they’ll tell you the truth at that moment — the moment that decides everything — then don’t pick them. It’s that simple.

Friendliness is not a substitute for capability. Likability is not a substitute for honesty. The agent who tells you only what you want to hear at the appraisal is the same agent who’ll fail you at the negotiation.

The Bottom Line

Your property’s appraisal value isn’t a single number that comes out of a database. It’s the product of dozens of factors — many of which the algorithms can’t see, most of which the average agent won’t talk about honestly, and all of which add up to either the right outcome or six figures left on the table.

The street appeal. The smell. The presentation. The renovations you do or don’t do. Which pocket of the suburb you sit in. The pricing strategy you choose. The marketing investment.

The buyer psychology you trigger or fail to trigger. The agent you choose to handle all of it.

Every one of those things either adds to your price or takes from it.
If you take one thing away from this article, take this: You don’t get the best price for your home in isolation. You get it with competition between buyers wanting your home. Everything else — the appraisal, the presentation, the marketing, the strategy, the agent you choose — is in service of building that competition.

And the agent you trust to build it for you is the one who’ll be sitting opposite you at the end, telling you the truth about the offer in front of you. Pick the one you trust to do that.

If you’re thinking about selling in Bedfordale, Roleystone, Kelmscott, Mount Nasura, Mount Richon or Seville Grove, I’d be happy to come and give you an honest appraisal. No pressure, no obligation, no game-playing.

Just a real conversation about what your home is genuinely worth in today’s market, and what we’d do to maximise it.

Call the office on 08 6254 6333, or contact me directly on 0439 998 867.

Truth. Strategy. Sold.

You’ve been in your home ten years. You’ve never really kept track of what it’s worth, but you’ve seen a few places sell down the road and you reckon you’re sitting on around $1.2 million. Interest rates, a renovation, consolidating some debt, helping the kids — whatever the reason, you’re thinking about refinancing.

So do you actually need an appraisal before you refinance? And if the bank does its own valuation anyway, why would you bother getting a real estate agent involved first?

After more than two decades selling homes across the Perth Hills, here’s my honest answer: getting an agent appraisal before you refinance costs you nothing, takes 15-30 minutes, and can save you from a mistake that follows you around for five years. Let me explain why.

First, Understand the Three Types of Valuation

Most homeowners don’t realise there are three completely different types of property valuation, and they get used for different things.

1. The bank’s AVM or desktop valuation. This is an automated valuation — the bank’s valuer uses a computer system and doesn’t physically visit your home. Banks typically use this when you’re borrowing at a lower loan-to-value ratio (under around 70-80%), where their risk is lower.

2. The full licensed valuation. This is ordered by the bank after you submit your finance application. A licensed valuer physically attends your property. This is the valuation banks and courts must use — they’re required to under the rules set by APRA (the Australian Prudential Regulation Authority). It’s the official, legally recognised figure.

3. The real estate agent market appraisal. This is what I do. It is NOT a licensed valuation — real estate agents legally cannot provide those, because we don’t fall under APRA. What an agent appraisal gives you is an informed, experienced read on where your property sits in the current market. It’s the starting point that helps you, and your finance broker, understand your position before you go anywhere near a bank.

The process usually flows like this: you get an agent appraisal to understand your value, your broker uses that to build your application, the application goes to the bank, and then the bank orders its own full licensed valuation.

Here’s the part most people don’t expect.

Why the Bank’s Valuation Almost Always Comes in Lower

When I appraise a property before someone refinances, I always tell them the same thing: the licensed valuation that the bank orders will usually come in lower than my figure. Often 10-15% lower. Sometimes more.

This isn’t because I’m inflating the number or the valuer is being difficult. It’s because the licensed valuation is answering a completely different question.

My appraisal answers: “What could this property realistically sell for on the open market?”

The bank’s licensed valuation answers: “If this borrower defaults and we have to repossess and sell quickly, what’s the safe figure we could recover?”

Those are two different numbers for two different purposes. To put it bluntly, the licensed valuation is the bank covering itself.

Here’s a worked example. Say your home is worth $1 million on the open market and you want to borrow 90% — that’s a $900,000 loan. If the bank ever had to repossess and sell, they don’t need to chase the full $1 million the way you would. They only need to recover $900,000 to cover what they lent. A conservative valuation protects that position and means their lenders mortgage insurance doesn’t need to be claimed.

So when your bank valuation comes back lower than you hoped, it doesn’t necessarily mean your home isn’t worth what you thought. It means the bank was never trying to tell you your market value in the first place.

The Five-Year Mistake Most People Don’t See Coming

Here’s the warning that matters most, and the reason I tell people to get an appraisal before they apply, not after.

The bank only does its valuation AFTER you submit your finance application — because the bank pays for it, so they won’t order one before you’re actually in the process. That means if you go in with a wrong idea of your value, you can find out the hard way.

If your application gets knocked back — because your loan-to-value ratio was too high, or because your home was worth less than you assumed — that declined application lands on your credit reference report. And it stays there for five years.

Every future lender who looks at your file will see that you applied for finance and were declined. It reduces your credit score and it affects your ability to borrow down the track. One rushed application built on a guess can damage your borrowing position for half a decade.

That’s why the free, no-risk first step — getting an agent in to tell you where you really sit matters so much.

A Real Example: The Client Who Called Too Late

Late last year, a client called me in — but only after it was already too late.

They’d applied for additional finance to help their business. The valuation on their property came back lower than they expected. At the same time, their business had hit a downturn, which reduced their borrowing capacity. The low valuation pushed them to a 97% loan-to- value ratio, and the bank ended up asking them to pay down part of the loan.

That’s when they called me — to see what could be done about the low valuation.

Unfortunately, by that point there was almost nothing I could do. Once a licensed valuation is completed, it is extremely difficult to get the number changed. In my entire career, I think I’ve only ever managed to get a valuation revised twice. Once it’s done, it’s effectively fina — as far as both the valuation company and the bank are concerned.

Here’s the thing that still bothers me about that case: if they’d called me BEFORE they put in the application and triggered the licensed valuation, we could have sat down and talked through their circumstances and the real value of the property. Given the business downturn and the tight numbers, the best advice might well have been not to approach that bank at all, and to look at an alternative instead.

That’s the real value of a pre-application conversation. It’s not just about getting a number. It’s about working out whether you should even be making the application in the first place — before it hits your credit file, before the valuation locks in, before the bank can demand a paydown.

What a Proper Pre-Refinance Appraisal Actually Involves

When I come out to appraise a property before a refinance, you should expect a full appraisal pack — genuine knowledge of the suburb, recent comparable sales, and what’s currently on the market. You should also get practical advice on simple things you can do to improve your position.

And here’s a tip that costs you nothing: declutter and give the house a good clean before the valuer comes out.

It sounds trivial, but it genuinely matters. The licensed valuer is a human being. If they walk into a property that’s a mess and poorly kept, they note it in their system, and it affects the figure. Why? Because they’re assessing whether the property is in a sellable state on the day they look at it — remember, they’re thinking about whether the bank could sell it if you defaulted. A property that presents poorly gets marked down.

One more honest point: it’s handy to give the valuer what your local agent has appraised the property at — and they’ll record it on the valuation form. But understand the valuer can only go off the sales evidence they produce themselves. They legally cannot be influenced by outside parties. So the agent figure is useful context, not leverage.

The Biggest Misconception: Trusting the Online Number

The most common mistake I see is homeowners building their refinance plans around an online valuation.

They go to a home open or two, browse a few comparable properties online, or run their address through an automated valuation system. The AVM tells them their property is worth $1.2 million. Then the licensed valuation comes in at $900,000 — and their whole plan falls apart.

The gap exists because automated systems can’t see the things that actually drive your home’s value: whether the property is connected to scheme water, whether it’s subdividable, whether it has valley views, Hills views, or a city outlook, whether the block slopes or is level, whether it has side access for a workshop, a swimming pool, reverse-cycle ducted air-conditioning, or built-in robes. All of these make a marked difference to price, and none of them appear in the algorithm.

I’ve written a whole separate article on exactly how unreliable online valuations can be and why — it’s worth a read if you want to understand the detail before you refinance.

The danger in a refinance is specific: if you build your borrowing plan around an inflated online figure, you’ll assume you have more equity than you actually do. Then the real valuation comes in lower, your LVR is higher than expected, and you’re staring down the credit-file and loan-paydown problems we’ve already talked about.

Things to Be Careful About Before You Refinance

The advice above applies no matter why you’re refinancing. But there are some specific traps worth knowing about.

Watch your loan-to-value ratio and stress-test it. Don’t borrow to a level that only works at today’s interest rates. Ask yourself: if rates went up half a percent or one percent, could you still cover the repayments? Borrow with that headroom in mind.

Be careful rolling short-term debt into your mortgage. Consolidating loans into one repayment can be a good move — but only if you’re disciplined and don’t go out and buy more toys with the freed-up cash. And think about the timeframe. A boat, caravan, car or motorbike would normally be financed over four or five years. Roll it into your mortgage and you could be paying it off over the 20 years left on your home loan — paying interest the whole time. That adds up to far more than you’d expect. Have a play with the mortgage calculator on our website to see exactly what adding that debt does to your repayments and total interest.

Think hard about extending your loan term. People often refinance a mortgage with 15 years left back out to 25 or 30 years. It can substantially reduce your monthly repayments — but it also adds an enormous amount of interest and years to the day you finally own your home outright. It’s a genuine trade-off. Talk it through properly with a finance broker or your bank.

Choose your broker carefully. Just like real estate, there are good brokers and bad brokers. Some will write you a new loan as fast as they can blink, because they earn a substantial commission on every loan written — and some will come back every two or three years to refinance you again for another commission. Plenty of brokers would never do this, and I know some excellent ones. Just be aware it happens. Sadly, I sometimes see the end result: a client calls me because they’ve been put in a position where they now have to sell before the bank repossesses.

Be especially careful in a separation. I’ve seen couples split amicably, agree to a 50-50 division based on an online valuation, and get badly caught out. A year later, the person who kept the house goes to sell and finds it’s worth less than the figure used in the settlement — or the person who moved out discovers the home sold for $150,000 to $200,000 more than they were paid out against. By then it’s too late. In any separation, get a proper licensed valuation and proper legal advice — don’t divide your biggest asset based on a computer estimate.

Your Step-by-Step Roadmap

If you’re thinking about refinancing, here’s the sequence I’d recommend:

1. Get clear on why you’re refinancing and whether it genuinely improves your position 2. Understand the true long-term cost — use a mortgage calculator to model the real impact

3. Get an agent appraisal so you know your actual value before you commit to anything

4. Talk to a good finance broker or your bank about your options

5. Then, and only then, submit your application — with realistic numbers and no nasty surprises

Don’t rush. Don’t over-borrow. And don’t let anyone push you into a loan that benefits them more than it benefits you.

The Bottom Line

For simplicity’s sake, your first port of call should be to get an agent in — just so you get a lie of the land before you make any decisions. It costs you nothing.

That one free conversation can tell you whether your refinance plan is realistic, protect you from an application that damages your credit file, and stop you from making a decision you can’t undo.

Thinking About Refinancing? Let’s Talk First.

If you’re considering refinancing and you want an honest read on what your property is genuinely worth in today’s market — give us a call, send an email, or drop a text.

We’ll come out, have a look, and give you a clear picture before you make any decisions. No pressure, no obligation. It doesn’t matter if you’re refinancing next month, next year, or just weighing it up — that’s what we’re here for.

Brendan Leahy, Naked Real Estate
08 6254 6333
brendan@nakedrealestate.com.au
Unit 1/198 Brookton Highway,
Kelmscott WA 6111

Truth. Strategy. Sold.

Disclaimer: Brendan Leahy and Naked Real Estate are not licensed valuers, mortgage brokers, or financial advisors. This article is general information based on experience in the local property market, not financial or legal advice. Always speak to your finance broker, lender, accountant, or solicitor before making refinancing decisions.

Every week, sellers in the Perth Hills contact me with a number in their head. Sometimes the number is from realestate.com.au. Sometimes it’s from Domain, Cotality, or a link their bank sent them. Sometimes it’s from all of them — and the numbers are $100,000 apart from each other.

So how accurate are online property valuations, really? After more than two decades selling homes across Bedfordale, Roleystone, Kelmscott, Mount Nasura, Mount Richon and Seville Grove, the honest answer is: it depends entirely on the property, the suburb, and what the algorithm can and can’t see.

In some cases, the online estimate is close enough to use as a rough starting point. In other cases, it’s out by hundreds of thousands of dollars. And the difference between those two outcomes is almost never something the seller can predict from looking at the website.

Let me show you three real examples from properties I’ve sold.

Three Properties Where the Algorithm Got It Badly Wrong

Churchman Brook Road, Bedfordale

Both realestate.com.au and Cotality valued this property at around $1.2 million.

We listed it from $2.5 million. It sold for $3.1 million — almost $1.9 million above the automated estimate.

What did the algorithm miss? Three things that completely changed the value of the property:

– The block had mains water connected, which is rare on acreage in this area
– It was subdivisible into three separate blocks
– The blocks were dead flat — meaning the earthworks cost for any future subdivision was a fraction of what it would be on a sloping block

No algorithm can read a contract of sale, walk the land, check a deposited plan, or assess subdivision potential. It can only see what’s in the public record about square metres and recent sales. So it valued a near-million-dollar opportunity at the price of a standard residential block.

Urch Road, Roleystone

The automated valuation systems had this property at around $800,000. We listed from $900,000. It sold for $1.1 million.

The algorithm missed two things that any buyer noticed within ten seconds of walking through:

– Stunning views down the valley
– An exceptional internal finish — the kind of presentation and detail that makes a buyer want to write a cheque on the spot

You cannot put a price on the feeling a buyer gets when they walk into a beautifully finished home with a view they fall in love with. No algorithm can see views. No algorithm can see craftsmanship. They see square metres.

Blackwood Drive, Mount Nasura

Automated valuation: $750,000. We listed from $800,000. Sold for $926,000.

This property was:

– Fully renovated — exceptional presentation
– Had outstanding views
– Walking distance to local primary schools
– On the main bus route

Walkable schools, transport convenience, and a fully refreshed home are all factors that drive premium buyer demand. Algorithms don’t measure school catchments by walking distance. They don’t grade renovation quality. They average everything out.

How These Algorithms Actually Work

To understand why the algorithm gets it wrong, it helps to know what it’s actually doing under the hood.

Most automated valuation models (AVMs) work on a fairly simple formula. They take:

– The square metreage of the home’s living area
– The block size
– Land valuations of comparable blocks that have sold nearby

Some systems also use a build-cost-per-square-metre approach minus a depreciation figure, similar to what a licensed valuer might do.

Where this works reasonably well: cookie-cutter suburbs where the homes are nearly identical. A 220-240sqm four-bedroom-two-bathroom home on a 500sqm block in an estate where the only real differences between properties are paint colour, floor coverings and furniture — the algorithm can get within a workable range.

Where it falls apart: the Perth Hills, and any suburb where the homes are genuinely different from each other.

Here’s a partial list of what the algorithm cannot see on a Hills property:

– Whether the block is level or sloping — and how steep that slope is
– Side access — yes or no
– Views — and crucially, whether they face west into the afternoon sun or north toward the city
– Water connection — mains, tank, or bore
– Whether the property allows you to keep pets, horses, or livestock
– Whether you can store trucks or run a business from the property
– The presentation and finish of the home
– The quality of the street and the surrounding area
– Whether there’s a workshop — and if so, whether it has power, and whether that’s three-phase or single-phase
– Pool, established gardens, usable outdoor space
– Proximity to schools, hospitals, transport
– Which buyer group the home actually suits — first home buyer, upsizer, downsizer, or renovator

None of these factors appear in any AVM. Yet in the Hills, every single one of them can shift the sale price by tens of thousands — sometimes hundreds of thousands — of dollars.

There’s one more critical limitation worth understanding. AVMs rely on comparable past sales as the backbone of their estimate. But the algorithm can’t see what those “comparable” properties were actually like inside, in condition, in view, or in any of the factors above. So it’s comparing a flattened version of your home to a flattened version of someone else’s. Two unrelated properties are forced into a comparison they were never actually similar in.

Which AVMs Are Best — and Which Are Worst?

Honest answer: they’re all unreliable, but some are worse than others.

In my experience selling Perth Hills properties, the more useful ones tend to be Cotality (formerly CoreLogic) and realestate.com.au. They’re not accurate enough to base a pricing decision on, but they at least sit closer to reality more often than the alternatives.

The worst ones are usually the in-house systems some banks have built. These often produce numbers that bear no relationship to the actual market — and worryingly, banks then use those numbers for finance and bridging loan decisions.

There’s another problem worth knowing about. Run the same property through the same AVM on two consecutive days and you can get completely different numbers. I’ve seen properties where one day the AVM says $900,000 and the next day it says $1.2 million. That’s not a small error — that’s a $300,000 swing on a property that hasn’t physically changed.

I know one property in our area that recently sold for $3.5 million. The AVM for that property today, AFTER the sale has been recorded in the public register, still says $1.5 million. The algorithm can’t even self-correct from publicly available sale data.

The Algorithm Doesn’t Even Agree With Itself

Here’s something easy for you to test on your own property right now. Look up your home on any of the major AVM sites, and you’ll see they don’t give you one number — they give you a low estimate, a high estimate, and an “expected” price in the middle.

That range is often 10% to 20% wide.

On a $900,000 property, that’s a spread of $90,000 to $180,000 between the algorithm’s own low and high figures — for the same property, on the same day, from the same system.

Think about what that tells you. The algorithm itself isn’t confident in its own answer. It’s giving you a band so wide that you could drive a truck through it, and somewhere inside that band is supposedly the value of your home.

If the system that built the number isn’t sure to within $100,000-plus, why would you make a six- or seven-figure decision based on it?

Even the AVM Companies Tell You Not to Rely on the Number

This is the part most sellers never read.

I’ve called these AVM providers directly when I’ve seen valuations that were significantly out. The standard response, every time, is essentially the same:

“It’s only an algorithm working on the square metreage of the house and the block. Our terms and conditions clearly state that the valuation should not be relied on for the value of the house, or as a market value for a bank.”

Read that again, because it’s important.

The companies that produce these AVMs explicitly disclaim, in their own terms and conditions, that the figure should not be relied on to value your home — and not relied on by banks as a market value.

It’s in writing. You can go and read it yourself on any of these sites. Look for the fine print at the bottom of the valuation, or in their terms of use. The disclaimers are there.

If the people who built the tool are telling you not to trust the number, that should be the end of the conversation.

The Real-World Consequences of Trusting an AVM

This is where it stops being theoretical.

Underpricing — costing you tens of thousands. Some agents will use a low AVM as cover for listing your property cheap so they can sell it quickly. Convenient for them. Expensive for you.

Overpricing — costing you the sale. It’s not always that AVMs come in low. Sometimes they come in exceptionally high. A weak agent will see your inflated AVM and say “well, let’s try that price and see how it goes” — without explaining what happens when a home sits on the market too long. Your home goes stale, buyers wonder what’s wrong with it, and you end up below where you should have been.

Insurance underinsurance. If you insure your home at the AVM figure and your home needs to be replaced after fire or flood, you could be $200,000-$300,000 short of what you need. In the Hills, site works alone can range from $100,000 to $250,000 depending on slope and access to services — before you’ve even laid a brick.

Tax consequences. This one catches sellers regularly, particularly on acreage properties. Here’s a typical example, and please remember this is general information only — not tax advice — and you must speak to your accountant before making any decisions.

If you have a 10-acre property and it’s your principal place of residence, the first 5 acres are tax-free, and capital gains tax applies to the other 5 acres. The AVM gives you one number for the whole property. But a skilled agent can break that down properly: the house block might genuinely be worth $750,000-$850,000 on its own, and the back block (especially if landlocked) might be worth significantly less than half the total. Splitting the AVM number in two evenly — which is what many people do — can mean paying tax on money you didn’t need to.

Family disputes and divorce. AVMs hold no weight in court. If your property is part of a settlement, the court will require a licensed valuation, and often will ask for three real estate agent appraisals as well. The AVM is irrelevant to the actual legal outcome — but I’ve seen sellers and their families make poor decisions in the meantime based on those numbers.

A Cautionary Tale from Roleystone

A while back I appraised a property for a woman in Roleystone who was downsizing.

Her daughter was helping her with the sale. The daughter had already taken out bridging finance on a property in another suburb based on the bank’s valuation system, which had the Roleystone home at $1.1 million to $1.2 million. The agent they were leaning toward had appraised it at $1.25 million.

I appraised it at $850,000 to $900,000 — which is genuinely where the market sat for that property.

The daughter would not accept my appraisal. She trusted the bank’s valuation system. They went with the agent who matched the AVM.

The property went on the market at $1.25 million. Four months and multiple price drops later, it sold for $875,000.

That’s below the bottom of my original appraisal range. The home went stale chasing a number that was never real. Meanwhile the family had four months of bridging finance interest stacking up on the daughter’s other property.

Everyone in that family was acting in good faith. The daughter was trying to protect her mum. But the AVM and the agent who matched it caused real, expensive damage.

So What Should You Actually Do?

If you’re thinking about selling, here’s the honest path forward.

Use AVMs only for very early curiosity — say you’re 12 to 18 months out from selling and you just want a rough sense of where the market sits. Even agents look at AVMs to see what buyers will see when they search your property online. So they’re not useless. They’re just not the basis for a decision.

When you’re getting serious — typically around six months out, sometimes sooner — get at least two, ideally three real estate agent appraisals. Free, no obligation, takes 15-30 minutes per agent.

Do not pick the agent who quotes the highest number. This is the single most important point in this entire article.

Many agents are trained in a technique called conditioning. They tell you what you want to hear to get you to sign up for 90 or 120 days. Around week six, they tell you the market has changed and you need a “price adjustment.” Now your home has been on the market for six weeks with the wrong price, it’s gone stale, and you’ve lost negotiating leverage.

A well-priced home in the Perth Hills should sell within three to four weeks. If it’s not selling in that window, the price was wrong from the start — and the agent who told you the high number knew it.

The right pricing strategy is to meet the market — or, even better, to price slightly below the market to create genuine buyer competition.

I’ll be blunt about something most agents won’t say out loud:*you and the agent don’t set the price of your home. The buyers do. There’s no retail price on a property. There’s no manufacturer’s recommended figure. If an agent guarantees you a specific price, they’re either lying to win your listing or they don’t understand the market.

What you can do is set up a process that lets buyers reveal what they’re actually willing to pay.

Why the Select Date Sale® Method Solves This Problem

Buyers buy on feeling. They walk in the door, and they either fall in love with the home or they don’t. No algorithm captures that. No fixed asking price captures it either.

Our Select Date Sale® method is built specifically to solve this. It lets buyers compete with each other to pay what THEY are willing to pay — without knowing what other buyers are offering.

That last part is the critical mechanism. In a normal sale process, if a buyer knows what other buyers have offered, they only need to bid slightly higher. You never find out what they were actually willing to pay. The gap between “slightly higher” and “their genuine top price” can be $10,000, $20,000, $30,000 — sometimes $100,000 or more.

The competition should be between the buyers. Not between you and the buyers.

In a traditional sale, the buyer offers low, the agent suggests meeting halfway, the seller agrees, the buyer pushes again, halfway again — and three rounds of “halfway” later, you’ve quietly given away 10-15% of your home’s value. You weren’t negotiating with the market. You were negotiating against yourself.

Select Date Sale® takes the seller out of that fight. The buyers compete blind. The market reveals the real number — which is almost always significantly higher than the AVM, and often higher than even the most optimistic agent appraisal.

The Bottom Line

Online property valuations are okay for a very rough idea. They’re built on data and algorithms that can’t see most of what makes a home valuable — and in the Perth Hills, that’s almost everything. They can be 10%, 20%, or even 50% out from the actual sale price.

So why wouldn’t you make a phone call?

A real appraisal from an experienced local agent takes **15 to 30 minutes**. It costs you nothing. You get a properly considered figure based on what your specific home is actually worth in today’s market — including all the factors no algorithm will ever see.

Get a Real Answer from a Real Agent

If you’ve got a number in your head from an online valuation and you’re not sure whether to trust it — give us a call, send an email, or drop a text.

We’ll come out, have a look, and give you an honest read on what your property is genuinely worth in today’s market. No pressure, no obligation. It doesn’t matter if you’re thinking of selling next month, next year, or just curious for now — that’s what we’re here for.

Brendan Leahy, Naked Real Estate

 08 6254 6333
brendan@nakedrealestate.com.au
Unit 1/198 Brookton Highway, Kelmscott WA 6111

Truth. Strategy. Sold.

Our demographic shape is changing; there are six distinct buyer segments in our Australian property market:

1. young renters;
2. first home buyers;
3. upgraders;
4. downsizers;
5. retirees; and
6. the aged care market.

Looking ahead, the demand from young renters and upgraders is set to decline; while that from aged care will likely remain steady.

The stand out groups (those set to be the main drivers of Australia’s housing demand over the next ten years) are first home buyers; those downsizing and retirees.

It may surprise some, but first home owners are generally aged 35 to 44 years.

This group is projected to take up 20 per cent of our total new housing demand over the next decade.

What first home buyers are looking for in a property is the room to grow and the opportunity for property improvement. And naturally, affordability is a big consideration.

Preferred housing options for first home buyers vary, depending upon the location.

Some first home buyers opt for inner city apartments; some look to townhouses/duplexes and small houses in middle suburbs; and some prefer larger detached and dual-income homes in outer suburbs.

The downsizer demographic refers to those aged 60 to 74 years.

Almost all of this group (92 per cent) have no children living at home; while just on three-quarters are couples or live alone.

Downsizers are projected to take up 32 per cent of total new housing demand over the next decade.

Their preference is to remain in the same neighbourhood, close to friends, family and established ties.

What they are looking for is low maintenance; convenience; like-minded residents; and small projects.

Some from this group are looking to experience inner city living – their preference is for spacious, well-priced, quality apartments.

This group also prefers compact housing like townhouses; villas and dual-income homes in both middle ring and outer ring suburbs.

Understanding Australia’s real underlying housing need is more than just a matter of calculating population growth and average number of people per household.

Demographics will determine our future:

It’s our demographic profile – the change in our household formation – that will best determine future housing need.

But the right housing will need to be built; and importantly, at the right prices, in order to encourage key buyer groups to purchase.

At issue is lack of diversity in Australia’s housing stock, and the ability for most to afford their housing preference.

Over the past 25 years, the median house value nationally has risen by 412%, or $459,900.

Twenty five years ago, the median house value across Australia was just $111,524 and units showed a slightly higher median value, at $123,840.

Since 1993, median house and unit values have increased by 412% and 316% respectively, providing home-owners with a significant wealth boost.

The capital gain over the past 25 years equates to an annual growth rate of 6.8% for houses and 5.9% for units and in dollar value terms.

The median value of the typical Australian house has risen by $459,900 since 1993 and unit values are $392,000 higher.

But, as always…long term annual capital gains have been reasonably diverse across the capital cities, with growth in house values ranging from 5.9% per annum in Adelaide and Brisbane to 8.1% in the Melbourne property market.

Across the capital city unit markets, annual growth rates have ranged from 4.1% in Darwin to 6.6% in Melbourne.

In dollar terms, the Sydney property market stands out, with the average annual increase in house and unit values equating to $34,426 and $23,594 per annum respectively over the past twenty five years.

The diversity in growth rates over a long period of time highlights the cyclical nature of the housing market, with dwelling values rising at different speeds from region to region and period to period.

For example, despite the Brisbane housing market recorded one of the lowest rates of annual capital gains, the period between 2001 and 2004 saw Brisbane house values rising at more than 10% per annum; the lower rate of long term growth is largely attributable to softer conditions since 2010.

Demonstrating the difference in values between now and 25 years ago, in 1993, 98% of all house sales nationally transacted at a value under $400,000 and only 0.2% sold for more than $1 million.

Over the past twelve months, only 29% of houses nationally sold for less than $400,000 and 16% sold for at least $1 million.

Across Australia’s highest priced capital city, Sydney, twenty five years ago only 0.8% of houses sold above the $1 million mark, whereas over the past year 50% of all house sales had a price tag of at least $1 million.

What could the future hold?

If property prices were to rise at the same rate as the past twenty five years, Australia’s median house value would reach $2.9 million by 2043.

While the past isn’t always the best predictor of the future, it’s a worthwhile benchmark to consider where housing values may be twenty five years from now.

Based on national house values rising at the annual rate of 6.8% per annum over the past quarter of a century, in 2043, the national median house value would be approaching the $3 million mark ($2.93) and the median unit value would be just over $2.1 million ($2.15).

While it’s hard to fathom, if we saw the same rate of capital gains as what was recorded over the past twenty five years, Sydney’s median house value would be $6.35 million in 2043 and the typical unit would be worth $3.47 million.

Melbourne’s median house value would be approaching $6 million ($5.82) while the median house value in Brisbane would be $2.24 million.

Obviously these simple extrapolations don’t take into account how economic and demographic conditions might play out over the next twenty five years or how housing demand and supply may evolve; so there is a real possibility that housing trends and growth rates could look remarkably different to what we’ve seen over the past twenty five years.

Some more interesting findings from the Aussie Homes Loans Report:

Strong housing market conditions have boosted household wealth over the past quarter of a century.

The housing market has shown some extraordinary changes over the past twenty five years, with conditions moving through five distinct growth cycles which have pushed national median house values 412% higher.

Over the same period, the ASX All Ordinaries index has risen by a substantially lower 261%.

While value growth has been remarkably diverse across the country, over such a long period of time, the cyclical differences in value growth and turnover have washed their way through the statistics.

Each of the capital cities have recorded annual growth in house values ranging from 5.9% to 8.1% over the past 25 years, while regional markets have generally shown a slightly softer outcome.

Twenty five years ago the typical house value nationally was just $111,500 and since that time values have risen by an average of 6.8% per annum to the current level of $571,400.

The typical Australian property owner who has held their house for the past 25 years would have seen an average dollar value increase of almost $18,400 per annum.

Of course, different regions have seen housing conditions track at different speeds.

The largest annual increase in housing values within a capital city over the past twenty five years has been in Melbourne where values have increased at the annual rate of 8.1% per annum.

Over the past twenty five years Melbourne house values have moved through seven periods where annual capital gains exceeded 10% per annum.

More recently, the Melbourne housing market has been in a mild downturn, highlighting that property values don’t always rise, but over a long term the cyclical nature of housing markets will typically provide a wealth boost.

Conversely, the lowest long term capital gains have been in Adelaide and Brisbane, where house values have risen at the annual rate of 5.9%.

The diversity in growth rates over a long period of time highlights the cyclical nature of the housing market, with dwelling values rising at different speeds from region to region and period to period.

For example, despite Brisbane recording one of the lowest rates of annual capital gains, the period between 2001 and 2004 saw Brisbane house values rising at more than 10% per annum; the lower rate of long term growth is largely attributable to softer conditions since 2010.

The average mortgage size has grown roughly at the same rate as housing values

With dwelling values moving higher, the average loan size has also shown a substantial increase.

In 1993 the average owner occupier loan size nationally was $81,500 and the figure has since risen to $388,100; an increase of 376%.

Twenty five years ago, borrowers in the ACT were holding the largest loans, averaging almost $97,000, however in today’s market the largest average loan sizes can be found in New South Wales ($445,500) and Victoria ($400,200).

Mortgage rates have reduced significantly since 1993.

Twenty five years ago mortgage rates were moving lower from their record highs.

Variable mortgage rates peaked at 17.0% in March of 1990 and by first quarter of 1993 they had reduced to 10.0%.

Today, the standard variable mortgage rate sits at 5.2%, the lowest rate since the 1960’s.

Mortgage serviceability rates have improved thanks to historically low interest rates, however affordability challenges remain.

The proportion of annual household income required to service a mortgage (based on a 20% deposit, a 25 year principal and interest mortgage and the average discounted variable mortgage rate) is currently tracking at approximately 36% compared with a recent peak of 51% of annual household income being dedicated to servicing a mortgage in June of 2008.

Although CoreLogic serviceability measures don’t extend back twenty five years, sixteen years ago, serviceability measures were lower despite mortgage rates being approximately 130 basis points higher.

With dwelling values rising most substantially in Sydney and Melbourne over the past two growth cycles, households are dedicating a larger portion of their annual incomes to servicing their mortgage repayments.

Households in Sydney are generally dedicating the largest proportion of their annual incomes to service a mortgage (49.3%) with Melbourne close behind at 42.6%.

Affordability is still a significant issue

The dwelling price to income ratio rose to new record highs in 2017 due to housing prices rising at a faster pace than household incomes.

This worsening trend in affordability was largely driven by the largest capital cities, Sydney and Melbourne, where housing values have shown the most significant increase.

Sydney’s dwelling price to income ratio is now tracking at 9.3, which means the typical Sydney dwelling now costs 9.3 times more than the median annual household income.

Affordability pressures are likely to be most pronounced across those segments of the market who have tighter budgetary constraints such as first time buyers who haven’t had the benefit of accruing equity in the housing market, and low income households.

Nationally, in order to raise a 20% deposit to buy a dwelling, households would need to dedicate an average of 134.5% of their annual gross income.

The proportion of household income required for a 20% deposit is substantially higher in those markets where value growth has been strongest over the past five years.

In Sydney, households would need to dedicate an average of 185.1% of their annual household income to raise a 20% deposit, while in Melbourne the figure is slightly lower at 159.7%.

Based on these numbers, households will generally require several years to raise a 20% deposit.

Anecdotally, more first time buyers are seeking assistance from benefactors such as their parents or siblings in order to enter the housing market with as large a deposit as possible.

First homebuyers make up a smaller component of housing demand

As dwelling values have shifted higher and affordability has become more challenging, first home buyers have found it harder to participate in the market.

Twenty five years ago, first time buyers accounted for approximately 22% of all owner occupier housing finance commitments.

While that proportion remained reasonably consistent until the year 2000, first home buyer participation in the market has generally been in decline since that time.

The exception has been periods of first home buyer stimulus, where grants and stamp duty concessions have been generous, first time buyer numbers have surged.

The current statistics indicate that first home buyers represent 17.4% of all owner occupier housing finance commitments, rising from a recent low point of 12.9% in late 2015.

Recent stamp duty concessions in New South Wales and Victoria have been a key driver of the rebound in first home buyer participation, while every state and territory has some form of incentive available for first home buyers, typically with greater incentives available for those building or purchasing a new property or those purchasing outside of the capital city.

Investors have become a larger component to housing demand

Investment trends have generally moved in the opposite direction of first home buyers, with investors becoming a larger component of housing demand over the past twenty five years.

In 1993, housing finance commitments for investment purposes accounted for only 20% of the market.

Fast forward to 2015, and investors as a proportion of housing finance reached an historic high, comprising 55% of the value of all new housing finance commitments.

Since that time there have been regulatory changes imposed by the prudential regulator, APRA, which has slowed investor participation in the market.

The latest data to March 2018 shows investors still comprise 42.8% of mortgage demand, more than double the proportion from twenty five years ago.

Urban density has increased as our population grows

The growth in property values over the past twenty five years has happened against a backdrop of ongoing densification across the capital cities, with higher density housing stock rising in prominence due to changes in town planning policies, changing consumer preferences and affordability factors.

Twenty five years ago, only 22.7% of all dwelling sales nationally were for units.

In today’s market units comprise 29.6% of all sales and in some cities where the densification trend has been more pronounced, higher density dwellings account for more than 40% of all sales.

Another example of the densifying urban landscape over the past twenty five years has been the reduction in vacant land block sizes.

In 1993 the average block size based on vacant lands sales nationally was 816sqm.

Developers have progressively reduced the typical block size over time to reach 541sqm in 2015 before land areas started edging higher to the current average size of 610sqm.

Across the capital cities, block sizes are generally smaller than the national average due to the scarcity of land and zoning regulations which allow for higher densities.

Adelaide and Perth show the smallest lot sizes, averaging approximately 379sqm and 375sqm respectively.

It’s still hard to imagine what property values in our future cities will look like.

If home values increase at the same annual rate as they have over the past twenty five years we will see a median dwelling value nationally of $2.9 million by the year 2043.

While that value looks astronomically high in today’s money, if the historic averages play out over the next twenty five years, Sydney values would be breaking the $6.3 million mark and Melbourne would be over $5.8 million.

One thing that is certain is that housing markets will continue to move through their cycles, with periods of growth, decline and steady values conditions.

History has shown that over time these cycles tend to smooth out the year to year volatility in growth rates.

A good example of this is the Melbourne housing market, which has shown the highest long term rate of capital gain, however house values in this city have been through five separate periods where values were declining on an annual basis over the past twenty five years.

Cities will continue to densify as the population grows and urban planning strategies seek to maximize the use of strategically located land and transport corridors, which means more Australians are likely to be living in higher density housing.

Innovative housing design is likely to increase in importance, with small living areas becoming more acceptable thanks to smarter design principles and better use of space.

With technology progressing at a rapid pace, there are likely to be more households taking advantage of flexible working arrangements where they can work remotely with rapid and reliable internet speeds, affordable telecommunications and less requirement to commute into a centrally located place of work.

This may see some housing demand deflected to the markets outside of the capital city boundaries where housing tends to be more affordable.

Additionally, with the eventual advent of driverless cars and rapid transit systems, commuting times from areas that were once considered to be outside of a comfortable travel range may become more popular with home-owners, thereby reducing demand to live close to the major working centres of the city.

There are likely to be a plethora of other evolutions in the housing market and housing demand that remain beyond the imagination.

It was less than ten years ago that the first iPhone was released and roughly twenty five years ago dial-up internet was only just becoming popular.

The likelihood is that advances in technology will continue to accelerate, promoting innovation in how we live and work.

Only time will tell, but the next twenty five years will certainly be an interesting ride.

But what we can be sure of is that the best investment locations will be in close proximity (say 10 – 20 km) to our 3 big east coast capital cities as the more affluent new generation of home buyers push up the values of well located properties, while the less affluent will be pushed further and further out from the main centres.

Most property buyers, even seasoned investors, default to simply buying the property in their own name, but this is not always the best and most financially savvy choice.

The legally recognised owner of a residential property can be a personal name or two or more people; a company; a trust or a self-managed super fund (SMSF).

The best option for you depends entirely on your individual circumstances and goals.

There are plenty of factors that come into the ownership structure, including simplicity, asset protection, tax benefits, financing, estate planning, future wealth or business growth.

When you look at it this way, it’s easy to see then how this decision can quickly become complicated.

While it is possible to change the ownership structure at a later date, this can be costly and usually triggers payment of stamp duty and capital gains tax.

That’s why it is important to decide on the most suitable form of ownership upfront, and this will usually involve consultation with your accountant or financial advisor to determine the best name to buy in.

Your options may include:

Your personal name

The majority of residential property owners appear on the title with their own name, occasionally in conjunction with a partner.

Buying the property using a personal name enables owners to claim a full Capital Gains Tax (CGT) exemption when you sell.

It is also simple and easy to finance.

Investors who have a high income and want to reduce their tax bill using negative gearing can find owning a property in their own name beneficial, but if they sell their property or it becomes positively geared, keep in mind that they will have to pay tax on that income at their high personal tax rate.

Company name

While purchasing an investment property in the name of a “Pty Ltd: company is an option, the specifics are quite complex and it is worth getting professional advice first but generally, this can be the preference of companies looking to purchase their own corporate premises.

It is generally not suitable for owner-occupiers or residential property investors to buy a property in a company, because it will not be eligible for the full CGT exemption available, it is harder to get financing and you risk losing the property if your company gets sued.

Trust

Buying a property as a trust is an increasingly common ownership structure for residential property investors, for myriad reasons: it offers tax benefits, provides asset protection and can be a smart way of estate planning, to name a few.

A trust can be comprised of individuals or companies who are nominated beneficiaries, but they are not actually considered owners of the assets.

Many investors do this as a form of asset protection as if litigation occurs against one of the beneficiaries of the trust (YOU!), the assets of the trust are not at risk.

Owning a property through a trust can reduce the amount of tax you have to pay on the profits.

You can choose how to divide the profits between the beneficiaries and if you distribute then according to those with the lowest marginal tax rate, it can work in your favour and lower your taxable income.

On the other hand, a trust only distributes profits, not losses.

This means that negative gearing cannot be used to lower your taxes; you will have to wait until the property becomes positively geared or is sold.

A trust is most viable when you are looking to hold the property long term.

There are a number of different types of trusts so it is important to speak to your accountant to determine the best fit for your situation.

Self-Managed Super Fund

As Australians become increasingly money savvy, they are beginning to manage their own super funds instead of leaving it to a third party.

Owning investment property through a Self-Managed Super Fund is often a good option for those who have already accrued a considerable amount of super. (Please seek independent advice to make sure this applies to you.)

Purchasing an investment property with a SMSF can be more difficult and more costly than purchasing as an individual.

There’s lots of government red tape and regulations to wade through and lenders often require a larger deposit, offer less favourable interest rates and have higher loan setup fees.

Clearly you need to working with a professional to ensure you keep within the strict parameters of SMSF laws.

One of the main benefits to buying residential property as a SMSF owner is the low tax rate: 15% on all money currently in the fund and 0% when it is taken out after retirement.

Owning through a SMSF is only suitable for property investors, because buying a property intended for personal use (living in it or a holiday home) is not allowed.

In summary

There are pros and cons to each ownership structure for residential properties and each has inherent complexities that affect its suitability.

To determine the correct ownership structure and therefore the name that will appear on the title document of your next property, discuss your situation and goals with your accountant to ensure the best and most profitable outcome.

Talk to a Naked Agent today to discuss your best options.