How can I determine the real value of my property or the one I am planning to buy?

When buying or selling a property, the most important part is to know what’s the real value of the property.

Buying or selling a property in Lebanon is a hard task by itself, how much more when you don’t know the real value of the property you are planning to buy or to sell.

No one likes to sell his property below market value, or finding one’s self buying a property above its real market price. And certainly no one wants to market his property for 2 years without success.

Determining the real value of a property in a country like Lebanon, in a sector where there are hardly any regulations to follow, no benchmark to compare with, and no recorded historical data to give us some indications, is not an easy task.

To make things even harder, often, good intended independent sworn evaluators will give you different evaluations.

When people are applying for a housing loan, I always advise them to apply to at least two different banks. You will be surprised how often evaluators from two different banks differ in their evaluations.

Sometimes the margin of difference between the two evaluations is not negligible.

When seeking evaluations from various real estate agents the situation does not get any better.

You will hardly find two agents who will give you the same evaluation for the same property.

Having said that, it does not mean there are no logical methods that help us determine the real value of a property.

The thing I dislike the most in my business, is when my clients ask me to evaluate their property.

I am very reluctant about it and I try to avoid it, not because I don’t know how to do it, for I know very well how to determine the real value of a property when I am obligated to do so.

So what I usually do when someone asks me to market his/her property, is to ask him/her how much he/she would like to sell it for. If the selling price is correct and reasonable (most of the time it is not logical), I will market it after establishing the proper marketing strategy for that particular property.

If the selling price is not logical, I simply decline taking the property on board.

I ask them how they managed to determine the price of their property and most of the time they say:” We asked in the area and they told us so”. This means absolutely nothing and is almost of no value.

It depends on who asked who? Is it the local barber who asked the grocery shop owner for advice. Or is it the local butcher who asked the Mokhtar or someone who works in the Baladiyeh! Most counsels coming from the Baladiyet are biased in the first place, as most employees there try to be samasra themselves and they have no clues. It is very hard to tell the property owner who wants to sell, that his offered price is too high.

You know how many Baladiyeh chiefs owns a lot of lands in their area and try to inflate prices all the time for their own benefits, to keep the artificial value of their own lands. inflated.

One Baladiyeh chief in a known area will not allow anyone to buy a land for constructing purposes unless the excavation work is done through only one particular company; his own. And the quotation happens to be double the normal.

Basically I avoid evaluating a property for my clients, for if I do, chances are that he/she will think I am being dishonest.

Even those who are desperate to sell, often put their property for sale at a price that is above market prices.

Why so many time, so many people, try to sell their property at a higher price than its real value?

Is it greed? No, most of the time this has nothing to do with greed but rather with emotions that cause them to make a misjudgment.

It is the emotional value of the property that causes owners to evaluate wrongly.

If you have been trying to sell your property without success, check your emotions.

Is your love for your property, your souvenirs, and the maximum value your property reached in the past, blinding you from being rational and objective?

Emotional value is the number one obstacle behind your failure to sell your property.

The second factor that is preventing your property from being sold is the ‘Living in the past’ syndrome.

Historically, Lebanon went through a long period whereby property prices kept or rising and stabilized or to took a pause at worst.  Consequently, a saying or slogan in Lebanon became very common: ”Property prices in Lebanon never goes down”.

And many today are not coming to terms with the fact that over the last 5 years, the real estate market has been very soft and over the last 2 years alone, property prices dropped by 22 pct on average. In some areas it dropped more.

Third factor preventing you from selling your property is your personal financial situation.

You are pricing your property too high because you have to pay back the mortgage and have made your plan on how to allocate the remaining balance, and therefore, there is a minimum selling price you are not happy to go below. Well if you don’t price your property logically, your debts will increase and your financial problems become harder to handle. You need to learn how to cut your loss at some stage for the market is neither compassionate nor merciful.

So if you are a seller and serious about it, rise from under the ‘Emotions factor’, the ‘Prices never goes down’ syndrome, the ‘Financial circumstances’ considerations and be objective, rational, reasonable and practical.

Now if you are a buyer, don’t expect to find people begging to sell their property at 40 or 50 pct, for this will not happen.

Any property that occasionally comes into the market at a greatly discounted price will disappear before it even reaches you. There are local Lords and hunters in every area who will snatch it immediately, within the same day before you even hear about it.

And if by any chance you manage to find a greatly discounted property, you still will not be able to snatch it, for you don’t know how to do it, nor would you know if it is really discounted.

Buying a property today, that is priced according to its real market value, should be satisfying, since you are buying it at least 22 pct better than few years ago.

There are two other misleading factors that are causing you to price a property wrongly:

The counsel of the fools and the crooks.

In this article, I will not talk about crooks but about fools. If you want to know about fools, you can read my other article “Do not shoot your agent as you might need him”.

However, fools are everywhere ready to give advises.

If you are planning to buy or sell a property, pleeeeeeeaase do not ask anyone who does not have experience in the field, including precious and loved ones, no matter how genuinely this person is willing to help. Counsels of fools could make you lose great opportunities.

People in Lebanon like to sneak their noses everywhere and don’t like to say I don’t know when they don’t know.

This reminds me of the great little book entitled: “The apology of Socrates”.  I loved this book and I learned one precious lesson from it.

Socrates was being accused of pretending to be smarter than others and in his apology he did not deny the accusations.  

In his own defense, he explained how he reached the conclusion that he was more knowledgeable than others.  He said he went to the painters and asked them about their gift and the art of painting.

He was amazed by their knowledge, gift and expertise in their field. They know their job perfectly.

Than the painters began to deliberately talk about law, philosophy, medicine and politics and that irritated Socrates. He discovered that the painters being very good at what they do, like to talk and give their opinion about all these different subjects, although they do not have enough knowledge and expertise in it.

Socrates realized that the painters know what they know, but do not know what they do not know.

He said: ‘the painters know what they know but they don’t know what they do not know, while I know what I know and I know what I don’t know and therefore I am more knowledgeable than them”.

He went on to say the same things about the sculptors, the writers, the philosophers, the lawyers etc..

He was very impressed talking and listening to the sculptors as they had amazing knowledge about their gift and profession but when they started deliberately talking about law, philosophy, politics etc.. he discovered that they are talking about something that is outside their realm of expertise and where they don’t have enough knowledge to give counsel about. So again, Socrates discovered that he is more knowledgeable than the sculptors, for the sculptors know what they know but do not know what they do not know, while he himself know what he knows and do know what he does not know and came to the same conclusion that he is therefore more knowledgeable than the sculptors.

I have talked a lot and have not started talking about the various methods of evaluating your property.

So be careful, don’t take the counsel of the fools when you are looking to make one of those crucial life time decisions.

So these are the method I learned to rely upon over the years when I want to evaluate a property:

1-Renting value (?????? ?????????)

This is the renting yield of an apartment or a house. Determining the renting yield is generally easy and this is the method the estate authorities rely upon when trying to determine the value of a property in order to fix the registration tax.

In Lebanon, renting yield on apartments and houses is different than most countries and it is per year around 4 to 5 pct of the value of the property. So if a property can be rented at $25,000 a year (around $2,000 per month), that means the value of the property should be around $500,000 ($25,000 x 20).

2- Price comparison of similar properties that have been sold recently in the same area.

That does not require much explanation. One has to do the due diligence himself or let someone else do it for him. Every time I decide to take a property on board, I go myself or detach one of my employees to cover the whole neighborhood or area to try to find out what is offered there and at what price and what have been recently sold and at what price. There are ways to find out.

3- Use of experts counsel and knowledge.

With time, I established a lot of contacts and friends who are active in the real estate market, whether brokers, constructors or investors. In every area I have at least 2 contacts that I consult with. Contacts that I believe have two main virtues; professionalism and integrity.

Indeed, professionalism and integrity are two commodities that rarely function together.

We need the expertise and help of local honest and knowledgeable experts of every area for we need to learn from Socrates.

When I take a property which value is above $500,000, I take the counsel of experts very seriously and we exchange information and go into debates. Often I get the owner involved in the debate. It is so crucial to me and to my conscience to determine the real price of every property. I don’t want people to fall into the trap of emotions, wrong counsel, historical syndrome or financial circumstances. I don’t want to see someone finding himself buying an overvalued property and I often cancel a deal to my own loss just for the sake of correctness, integrity and reputation building. ‘ For what shall it profit a man, if he shall gain the whole world, and lose his own soul?” (Gospel of Mark 8:36).

4- Profit margin

This is very important, especially when it had to do with lands.

When constructors buy a land for the purpose of constructing and selling apartments, they expect to make around 35% profit of their invested capital in a period of around 2 years.

So by taking into consideration how many square meters he is allowed to build on the land (This is very easy to determine since every land is allocated a zoning or ratio code), how much it will cost him to build those apartments, the value of the finished apartments he intends to sell, and the 35% profit margin he expects to make, determining the price of the land becomes clear.

5- Future value:

When someone is buying a property he needs to make a projection on the future value of the property. What would the value of the property be in 3 or 5 years from now. If it is a land he plan to buy for investment purposes, his money is going to be locked for 3 to 5 years in a fixed asset without any yield on his money. 

For instance, if someone keeps his money in a bank deposit for three years at today’s prevailing rates, he should make around 20 pct gain on his capital including accrued interest.  Not to mention the liquidity factor of bank deposits in case of any emergency. So he needs to have a vision whereby the future value of the land in 3 year’s time should increase by at least 25% when taking into consideration liquidity and risk factor.

So if you reverse the formula and can work out what the price of the land should be. 

6- Market determining factor:

This is in fact the most important factor.  Marketing a property is totally different today than it was 20 years ago, 10 years ago, and even 5 years ago. Everything now goes through social media.  When you put an ad, you are able to determine how many views, impressions, likes, sharing it generated. You can know precisely how many took the telephone number and moved the ads to their list of favorites. On same pages you can even know the type of people who viewed the ad.

So when I put an ad, I take note of the number of likes, impressions, e mails, messages, and phone calls the ad generated. And consequently, how many visitations came out as a result.

The more there are activities and responses to the ad, of various types and from different sources, the closer I am to the real value of the property and vise versa. It is the market that determines the real value.

For sometimes I have been putting responses and statistics on an excel sheet for study and comparison sake.

I know ahead of time now, by experience, the kind of response a new property on my list is expected to trigger.

These are the basic 6 methods, however there are other factors as well, like exceptioal features, exceptional circumstances, experience, taste, feeling, discernment, contacts, reputation…etc..

I don’t want to take more of your time and thank you for your patience.

Happy Valentine by the way.

Walid El Khoury

Owner and CEO of Eagle Eye Estate Co. 03896124