What is the house price? $70 million! [prices from thin air]

16 August 2021

A least once a year there is a property that comes to market and is later sold for an incredible price. We furrow our brow to fathom how this house price is seemingly plucked from thin air.

In an attempt to substantiate these house prices. We employ internationally recognised standards of property valuation methods in order to provide some rationale or method to the madness. During my time at university, one of the very first subjects taken in Property Economics at the University of Technology, Sydney (UTS) is Property Valuation. The first rule for valuation is the correct application of the most appropriate method for the different types of property across the spectrum.

Valuation Methods to determine house price

In general residential valuations, the most common method employed is the comparable sales method. This method can be used in conjunction with the summation method. The comparable sales methods compare recently sold properties with similar characteristics and location to derive value based on the transactions in the market place. Its reliability increases with the number of comparable sales. The veracity of those sales as evidence decreases over time. The summation method takes a mathematical approach by taking the value of the land and then adding the value of the improvements (house, shed, pool etc) upon the land. It is rarely used as the primary method and can often miss the mark.


In this article, I do not want to focus on the pros and cons of each valuation method. Rather, point to the shortcomings of applying a comparable sales method when there are no comparable properties. The most recent prestige listing being ‘Leura’ 24 Victoria Road, Bellevue Hill has a land value at 1st July 2020 according to the NSW Valuer-General of $19,900,000. In July 2015 when it was last sold for $30 million it had a land value of $17,100,000. In 2015, could we have justified, the value of the building alone being $12,900,000, perhaps? But after six years could we now justify a potential building value of $50,100,000 at the current price guide? Even at a price guide of $50,000,000, a building value of $30,100,000. Probably not.

Across the board of ultra-prestigious the summation method uncovers inconsistencies within itself as a viable method. One last method that valuers’ can use to gauge an approximation. Is the take the average growth of the region since its last sale and then apply that percentage rise to the previous sale. However these properties are not the average, they are outliers, exceptions to the rule, therefore how could we apply an average figure in order to derive value and the house price.

These inconsistencies, assumptions and approximations are our attempt to apply scientific and logical patterns to irrational human decisions driven by emotion. Through our attempts to derive what the market would pay for these properties what we failed to understand is that there is no market for this type of property. There is a very small buyer pool with unlimited means.

Who are these buyers?

Who are the types of people that can buy and sell this type of property? They are the movers and shakers of Australian society, unburden by debt and without limits. By no means the average. Property is not seen as a dwelling alone, it is seen as an investment in the security of the financial wealth and stability of your family. It is a trophy for your success, it is a show of strength to your competitors. We can not apply the same methods to value property the way we see it when the way they see it is completely different.

Valuation is an art within a science, an opinion that represents the market.

I posit that the nature of prestigious property is more similar to that of art. Therefore should be valued the same way. If a Monet sells for $x, it does not mean a Renoir is worth $y because they are both impressionists. It may correlate to a degree but not completely correlated.

Valuation of art as a possible method

Art can be to some, paint on canvas. Its value is derived by two factors. What it’s worth to you and your capacity to acquire it. If all you see is paint strokes on a canvas. Your version of value being the cost of the components and labour will never be quite enough. The same way as saying “ I wouldn’t pay $70 million for that” as you were never really ever in the market. Someone who sees a one-of-a-kind example of 19th-century impressionism is willing to pay over $100 million. Simply because they have the capacity to do so for whatever reason they may hold. This also relates to the seller whether they are willing to sell the painting at that price.

What we are seeing is not market value to the market. It is a hybrid between market value and special value. This is a concept in valuation which relates to a value higher than market value for a property given its attributes which are only of value to a particular purchaser. I believe that they are referring to physical attributes alone. In prestigious property, the attributes which makes a purchaser pay a lot more than what we believe to be where the market would be are intangible. They are unique only to small market of those special purchasers which is not reflective of the market as a whole.


When looking from the outside within, it’s important to acknowledge that different people see the same things as us but in a different way which governs their decisions which may seem strange. The prestigious property market represents the interaction between a very small group of special sellers and purchasers, to apply the same methods in an attempt to substantiate market value is a fallacy simply because these properties do not fit the model of regular valuation methods to determine the house price.

Alexander Gibson

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