We all hear the commonly used term ‘Market Value’. Can you establish what exactly market value is, and how it works?

At the end of the day market value is simply where the seller and the buyer come together and settle a price which both parties believe to be the market value of that house on that day. There’s no other way we can establish what market value is except at what price a piece of property sells for. What people will try to do is establish market value without that criteria taking place, so they might go and try and get an opinion from the real estate agent, and the real estate agent will give an opinion of what he believes a property will sell for on any given day, and therefore establish market value.

Some people also get a Valuer, and they will pay a fee for him to establish market value, but you’ve got to be very careful when you do that, because Valuers value properties based on a set of logic instructions, so it might be like, 3 bedroom / 2 bathroom houses, what are they worth?

Remember, buyers and sellers don’t buy and sell residential real estate on logic, they do that on emotion, they buy and sell commercial property on logic, but buy and sell houses on emotion.

Where a lot of people get caught is, they get a logical valuation on what their house is worth, but it doesn’t take into consideration that there may be drug addicts next door, it may not take into consideration that they are living under power wires, or a whole bunch of emotional reasons to why the market may or may not pay what they would expect them to pay for their house. So the market value at the end of the day, as pathetic as it is, it’s just what someone is prepared to pay, and what someone is prepared to let their property go for.

So it’s more of an individual’s opinion?

That’s what it is. People do not sell their houses below market value, they establish the new market value. This has become very important, especially in the UK.

A lot of people run around saying they’re buying houses below market value, so here’s my question:
“Are they actually buying houses below market value, or are they simply just establishing the new market value?” People aren’t silly, sellers aren’t going to sell houses for 30% less than the market value, they’re going to sell it for what they believe to be the market value for that price on that day with that buyer.

So how do you know if you’re buying a house under market value?

The only way you know if you’re buying a house under market value, and not at what’s called the ‘new market value’, is you simply know what gets bought, and sold and traded in that particular area, and that doesn’t mean that you need to go all over the world, it means that you get to know one area fairly well, and then when things are traded, it will trade in like a band. So you just get an idea of what’s selling on any given day and what things are selling for, what the value of worth is.

What advice would you give to the individual for their initial areas to start buying in?

‘Where do you start, where do you go and look first.’ Sydney is a big place and there are lots of properties in Sydney. It takes too much of your life energy to try to get to know everything. So concentrate on a very, very small area, because bargains are everywhere, bargains are next door, and get to know what happens in that very micro market you’re in. When you get a call, or someone calls or you see something, you very quickly know in your own mind what that’s worth based on what else has been happening in that very spot.

You educate your students on buying houses at a discount, how do you determine what constitutes a discounted house?

Traditionally discounts have always been obtained based on the condition of the property, being presented to the market place in a sub-standard way, and people have been able to purchase those things at a discount.

But it is more to do with the way the property can be purchased, that can build in fantastic discounts.

Some houses are really hard for agents to sell because they simply can’t get buyers into the house because of the smell that has permeated throughout the property. Or, a lot of people like to keep animals. Smelly houses… big discounts for smelly houses.

Main roads, I may sell houses at a premium profit, because it’s so easy to market the property. However, people who need to buy a house have a perception about main roads, and substantial discounts can be bought for houses on a main road.

Substantial discounts can also be bought for houses under power wires, because a lot of people believe that if you buy near power wires you’ll get cancer and die, some people don’t care. You’ll find that houses with pools – even though you’d think that everyone would want a swimming pool – are really high maintenance. The best thing you could do when you buy a house with a pool is you buy it at a big discount, because it comes with a swimming pool, and spend three or four hundred bucks and get it filled in.

Termites are one of those interesting things where everyone will do a termite inspection. You can do an inspection and then ask the seller for a termite discount. Termites might only be in the front fence of the house, and they’ll just remove the front fence. And the perceptions of these things also reduce property values. Not so much what they actually are, but the perception of what they are, or the perception of what they could be.

Estate sales, when people have their parents pass away, normally you get a situation where you might have three or four kids who now have to look after this house, and usually they are all splintered all around the country. Usually the house, especially if mum and dad have passed away is going to need some sort of work to get it back on the market, and no one wants to be responsible to put that all together, based on the fact that they still have to share equally in the profits.

I went to a house a while ago and there were five brothers, and I could see that the house had been half renovated, and I said ‘Which one of the brothers is doing the renovation in return for his share of the profit?’ And all of a sudden that brother just realised that he was getting no more money for his share of the profit. He just suddenly wanted out, so usually when you get a situation like that, estate sales can be great, everybody wants out.

Divorce, people don’t love each other anymore. Another way to obtain a discount. They want to be away from each other fast – they just want to get away.

Sometimes you get neighbors that people simply don’t like.

So you’ve got all these issues that take place