How do you determine 'value' or whether something is 'over-priced'?

riclad

You look how similar house,s are selling for, see the property price register , look on daft.ie , myhome.ie .the value depends on the area,
Is it close to bus stops, luas, shops, schools.
Also theres middle class area,s , a 1bed apartment in dublin 4 is more expensive than a house in finglas.
Theres a limited amount of sites in dublin suitable for house building ,
i do,nt think there,ll be a big drop in prices in dublin.
What seems to be going on now is we are reaching the upper limit,
in regard to prices going up in dublin.
the price of a house is build cost plus x .
x = market forces ,demand , how many people want to live in an area .
People who are over 20 and earn enough to borrow and obtain a mortage.If you want a house in stoneybatter you have to pay at least x amount,
its probably impossible for a builder to find land there to build new house,s there .
You also have to take into account rental costs ,
do you want to pay 1000 euro for rent ,
would you not be better off paying a loan and you will own a home in 25 years .
Say you buy a house in the libertys in dublin , i think it,ll hold onto
its value over the next 10-20 years .
You,ll have to pay more for a house with large garden than a terraced house if its in the city centre.

LuckyLloyd

I find it personally fascinating how people talk themselves into knots around houses and feel it belongs in its own bespoke territory when it comes to price, value, affordability, risk, etc. Often you'll see people who are perfectly capable of charting a reasonable path with how they spend in every other aspect of their lives, but seem to be overwhelmed when it comes to property. I get that the purchase price and commitment is so much bigger, but the same fundamentals apply to paying rent as any other service; or buying a house as it does any other good.

Something is probably overpriced if you can find comparable items that have sold recently for much less than the asking price you are being faced with. That's it. Just because someone is willing to pay it doesn't stop making that true. It might suck because you really want a particular type of house in a particular type of area to realise that you're on the wrong side of the curve, but that will be the situation. You can accept you're overpaying or you can step away and look for a different type of thing. In any market you want to start a run or trend rather than conclude it.

You might decide that - as you intend to live in a particular house long term - it's what you want and you can afford it and you're buying it anyway. But that does not mean you didn't overpay or underpay. It just means you didn't care. If you're investing you absolutely need to have a sense of price, because yield and range of resell value will dictate the success or otherwise of your investment. Again, just because you paid a price doesn't mean that's what it was worth.

LuckyLloyd

BarryD2 wrote: »

The value of something is what someone else is prepared to pay for it. If a product or house or whatever is 'overpriced' then no one will buy it. If someone buys it at whatever price, it cannot be 'overpriced'.

Things can be priced beyond the means of some people but that's not overpricing.

Of course, if some people pay inflated prices for goods or houses, then find they can't afford them - well tough, that's the other side of the coin. They should be stripped of those assets.

If a bag of coffee is on sale in a supermarket for $3.50 but you pay $5 for the same bag (same brand, same style, same weight) in the newsagent down the road because it was closer to your house did you overpay?

How about if we get some bad weather again this winter and the local hardware shop increases the price of shovels as they run out, and you get the same shovel your neighbour bought two days ago for 20% more - did you overpay?

Ray Palmer

I think some people miss the full understanding of supply and demand. Price is not just about what people are willing to pay but what people are willing to supply at.
When house prices dropped 2nd hand house for sale dramatically dropped. The percieved value of the property didn't matter they weren't for sale so you couldn't buy them.
Negative equity is often misunderstood too with some assuming every house bought during the boom was in negative equity. Reality is it only had an effect on some and if you could service your mortgage there was no problem. I know people who gave up houses they could afford due to negative equity but would have a better LTV and paying less than they do in rent.
Ultimately the ability to pay is the key and value is some what opinion but we'll serviced areas do have a value as do place close to major areas of work.

riclad

A house is overpriced , if it loses value, if you could buy a similar house
for a lower price.
IF someone is rich i see no problem if they want to pay 500k to live in
a high status area .And they can afford to pay the loan back
in 20-25 years ,even if interest rates go up.
The problem in boom people were paying 300k for a standard semi d
house which left them in negative equity when prices fell.
An investment property is overpriced if the rent does not cover the cost
of buying it or it gives you a low annual profit ,say 5 per cent after tax,s
and expenses .

The_Conductor

riclad wrote: »

A house is overpriced , if it loses value, if you could buy a similar house
for a lower price.

I honestly have no idea how you make this out.
The international norm is to *depreciate* the capital value of residential housing by between 2 and 4% per annum. It is entirely normal for a residential property to loose value. The belief in property prices only going in one direction- is almost unique to Irish people- and the manner in which it is not codified into the tax system, is an aberration in international norms.

It is normal for property prices to rise and fall in absolute terms- as it is also normal if you shop for long enough- to find a similar house for a lower price. This is *normal* and has no bearing on the relative value or worth of any other given property- at any other given point in time...........

riclad wrote: »

IF someone is rich i see no problem if they want to pay 500k to live in
a high status area .And they can afford to pay the loan back
in 20-25 years ,even if interest rates go up.

20-25 year mortgages- are- unfortunately- the exception rather than the rule. These days most folk are on 30 or even 35 year mortgages. If someone has the net income to pay back a large mortgage in 20 years, and has been stress tested to account for interest rate rises (and they are rising)- then the property they buy- is worth what they pay for it- to them.

What something is worth though- is subjective. Just because you or I might think that 3 bed semi in Stepaside isn't worth 300k to you or I- it doesn't mean there won't be a procession of other folk up the street- who are more than willing to consider it worth 300k, or more, to them.

A property is overpriced- if there is no prospective buyer out there willing to pay what the seller is seeking for it. Thats it- plain and simple. The fact that its overvalued by 150k for you or I- but only 50k over-valued for someone else- means nothing. Its entirely subjective.

riclad wrote: »

The problem in boom people were paying 300k for a standard semi d
house which left them in negative equity when prices fell.

Why is this a problem? This is *normal*- not an aberration.
This whole belief in property holding value- really needs to be knocked on the head. If you were in Germany- the acceptance is that any given house looses 2% of its current value per annum- ad infinitum. This is normal. In the US- you can offset a depreciation in property value against taxable income (which is what Kutchner- Trump's son-in-law did- its entirely legal and above board- perhaps not ethical- but most certainly legal). The Irish belief in property being some sort of sacrosanct investment that shouldn't loose value- is nuts- its completely and utterly coconuts.

riclad wrote: »

An investment property is overpriced if the rent does not cover the cost
of buying it or it gives you a low annual profit ,say 5 per cent after tax,s
and expenses .

It depends.
Different landlords have different cost models- e.g. the REITs and a cohort of other landlords, comprising >60% of the total amount of housing stock in the residential letting market in Ireland- load the properties they are letting with improbable amounts of debt. Some cute international companies- lend their Irish affiliates the money to build or buy units- at completely arbitrary interest rates (one infamous Canadian group in the Irish market- lent their Irish branch the money to buy units at an interest rate of 14.5%- specifically so it can never make a profit).

There are some very esoteric models in operation out there- and often a headline 'profit after costs'- quite simply doesn't enter the equation.

A majority of the rest of the units- either have no debt at all associated with them (often inherited properties)- or a debt that isn't associated with the open market value of the property (often people's sole property that they are letting out while they simultaneously are renting elsewhere themselves).

One of the changes introduced in this year's budget- was to make mortgage interest 100% deductible for all landlords. However- this is highly problematic- as it provides a perverse disincentive to paying down debt- and simultaneously- does nothing for the cohort of landlords out there who are taxed on their rental income- but have to rent elsewhere from their net income- aka they can't offset rental income against rental outgoings..........

A headline 'profit' is not the be-all and end-all for a lot of landlords- many have other motivations too- esp. multinational groups- who are treated exceptionally generously from a tax perspective- and can simply use their Irish assets as a cost sink against which to write off taxes accrued elsewhere.......... It shouldn't happy in the real world- but any REIT or landlord with reasonable scale- does just this.

The idea of the level of rent resulting in a 5% ROI after costs for a landlord- is a quaint and simplistic manner of looking at letting property as a business model- which is why it was suggested if a straight 20% tax was charged on all rental income at source- it would result in over 3 billion extra in tax being collected by the exchequer per annum. Yet- its toxic to say this out loud.

Its not a simple business model any longer- by a long shot- and this is the stated preferred model of Threshold and other advocacy groups- well, be careful what you wish for- you just might get it............

Eric Cartman

if the estate agent isn't crying when the seller accepts then its over priced.