Identifying that underpriced home

At any given moment in any given property market, there are homes that are overpriced and those that are underpriced. The trick is to know the difference.

In Singapore, it is easy to spot the difference with the right tools. SRX Property data showed that in this week alone, there are a total of 818 properties for sale or rent — HDB and private — that have asking prices below their X-Value.

In the leasing market, real estate agents are advertising 320 homes at rents below their X-Value. In 25 of those cases, the asking rents are 20 to 30 per cent below their X-Value. From the Private Property Hotspots graphic, you can see that many of those rentals are concentrated in the Core Central Region, or city centre.

The X-Value is a computer-generated estimation by SRX Property of a home’s market value. Developed with government and private funding, it sources from a comprehensive property database and instantaneously calculates a single value for every home. It is an indicative value and does not replace official valuation reports.

X-Value factors in all comparable attributes and adjusts for differences in important variables such as location, size, floor, and age. As a result, identifying an underpriced home is easy.

Go to SRX.com.sg and get the unit’s X-Value. Subtract the X-Value from the listing’s asking price: A negative result is a good result.

For example, the asking price for a 3-room HDB resale in Jurong West Street 92 is S$285,000 but its X-Value is S$309,000. S$285,000 minus S$309,000 equals a negative S$24,000. This means potential savings to the buyer as the real estate agent is asking S$24,000 below the X-Value.

The good news for HDB buyers is that, this week, real estate agents are advertising 275 resale flats with asking prices below their X-Value. As with any important transaction, you never want to act without analysing the numbers. Never take numbers at face value. Drill into them. It is important to be sceptical and ask the tough question, “What’s so wrong with this property that the seller is willing to discount it to below its X-Value?”

In some cases, such as in a declining market with lots of competition, the seller and his or her agent might have no choice but to discount the property, especially if they want to offload it quickly. In other cases, it might turn out that the unit is sub-standard and dilapidated when compared to similar, recent transactions that went into the X-Value calculation.

Another reason for a disparity might have to do with the accuracy and legitimacy of the listing. In the benign case, the real estate agent might have made an innocent mistake in uploading the asking price.

In the cynical case, the agent might be trying to lure you in with a low price and then encourage you to bid higher by warning you of “strong interest from another serious buyer”. In the pitiful case, the agent might have forgotten about the listing and the market value moved away from the asking price that he or she had originally posted online.

The point is that there are good and bad reasons for differences between the asking price and the market value as determined by X-Value.

However, by starting with the X-Value, you have a quick and accurate way to identify undervalued and overvalued properties. Once you have done that, the next step is to understand the reason for the discrepancy.

In a few lucky cases, the difference between the asking price and X-Value will work in your favour. But, act quickly. As soon as other people recognise the good deal you are about to get, they will bid up the price and your discount will disappear into thin air.

About the author:

Sam Baker is co-founder of SRX Property, an information exchange formed by leading real estate agencies in Singapore to disseminate market pricing information and facilitate property listings and transactions. For more Property Hotspots, visit SRX.com.sg/research.