How accurate are online property valuations / estimates?

Thanks for the feedback.

Lets say my strategy was to buy atleast 20-25% below market value as my intention was to refinance as soon as possible to use the funds for my next investment.

So I find a property on the market (via and agent or privately) for $220k. I have no idea if this asking price has been inflated by the agent or vendor to get a better price, so the quickest and easiest way is to get an estimate. You run a computer aid estimate / valuation and it comes back as a $200k. I can then compare similar properties in the street or suburb to get a better feel and to confirm this estimate.

My next step is to try get the vendors expectations to something more realistic ($200k), which is where i’m hoping these online estimates come into play.

Once both myself and the vender come to a understanding that the market value is closer to $200k, I am now starting at a better base to begin negotiations.

As my investment strategy is to buy 25% below market value (for refinance purposes), i offer the vendor $150k and depending on his circumstances, will either accept or decline.

If he accepts, i want to know that i will be able to extract some of the equity from the deal for my next purchase. The online price estimate was partly used in arriving to a market value of $200k, which is why i need to be slightly confident that the banks valuation is close to the online price estimate.

Something which i thought about last night..

Lets say i relied purely on the online price estimate, which was $200k. When i put an offer for the property for $150k, would i be able to add the following into the special conditions of the offer:

“This offer is subject to and conditional upon the banks valuation of atleast $200k”.

This way I am safe guarding myself and ensuing that the banks do find value in the property. This is also an ‘escape’ clause to get out the deal. What that work?

grantos_champos , lets paint a picture for you..

A few years back you bought your property for $100k and got a mortage of $80k. You loose your job and your debts (credit cards, car repayments, electricty, water, gas) are pilling up. You are unable to service your mortgage repayments and the bank is about to start the process of repossessing your home.

Time is running out for you. You consider selling your property via an estate agent, but you are advised the average days on the market is 2 months.. you dont have 2 months.

You know your property has a market value of of $200k, but this is not going to help your siutation. If you wait 2 months to sell your property, the bank would have already stepped in to reposses your home, leaving you with $0 and a bad credit history.

If an offer comes in at $150k, you have $80k to settle your mortgage, leaving you with $70k to repay all your other outstanding debts as well as some spare cash to keep you offloat for a while until you get back on your feet and the piece of mine of being debt free.

What would you do in this situation? Its a no-brainer.

Jpcashflow, thanks for your input

With regards to your points:

1: I have heard about RP Data, but they are extremely expensive when only using for personal use.
2: That was just an example, which happens out there. How would a home owner, with no income and other debt, be able to draw addtional funds from their mortgage? Surely they would need to provide the bank that the can afford the addtional funds? Even if they could, this would only be a temporary solution.
3: Exactly, which is why you need to be specific in what you say and how u use this cluase and prefably get it checked out by a lawyer before using it.

Thanks Michael, this clause was just a quick thumb suck to try prove a point or an idea i was trying get across with regards to get creating around your contract escape clauses.

Do you have a good lawyer I can use? The ones I have used back home in South Africa have generally been the smaller firms with less of a big, powerful reputation.i.e you paying for their service and not their name.