When pursuing a successful property search, understanding how property price guides are used can remove a lot of the guess work in your search.
Not all price guides are created in a similar way
After spending a month or so searching for property, you might start to think that everything sells above and beyond the price guide. In Australia, the most common way to sell property is at auction. Pricing something for auction and pricing something for sale are very different exercises. If you price something ‘for sale’ you would usually set the price at the top end of the potential sale price, and then try to engage and negotiate with buyers. When pricing something for auction, you would usually price something lower, with the objective of creating competitive interest, starting a bidding war and building the price up. The pricing strategy is crucial, but agents can only provide guidance within the vendor’s aspirations. Sometimes they can get it very wrong.
What are the legal requirements for price guides?
When a selling agent agrees to sell a property on behalf of a vendor, they must nominate an estimated price range at which the property will sell. Legally, this range has to be 10%. If the property is worth around one million dollars, the agency’s price range is likely to be $900,000 – $1,000,000. The auction price guide to the market will then be $900,000. When beginning their campaign, some agents might not even provide a price guide, which is legal. They will have one open home before setting a price guide that they believe will not deter buyers, but provide a realistic basis from which to build interest.
Know your agent
Every agent operates differently. There are good, knowledgeable agents, but there are also poor agents. Some agents will try to secure a listing by advising a vendor that their home is worth more than its actual value. Other agents will be able to advise a vendor of a realistic and competitive price guide. As a buyer, understanding the difference is imperative. I often inform clients that If they see a property online and think, ‘wow, that’s cheap’, it is highly likely that everyone looking at that property is thinking the same thing. On the other hand, if a property looks expensive, that might be one to watch as the high price guide might deter other buyers.
How do you know if a property has a price guide that could help or hinder the sale of the property?
In answering this question, a good place to start is by reviewing the agent. Market share is a good indicator of what kind of agent you are engaging. Find out how many listings an agent has and, if they have quite a number of listings, track how they sell relative to the guide price. This can be a good indication of how good an agent is at pricing a property. If all their listings are selling for 10%-20% above what they are guiding, they are good at pricing property. On the flip side, a less competent or experienced agent is likely to have fewer listings and have their properties priced too high to attract a sale. Comparable sales and market trends will also offer some insight.
Track the property
Most auction campaigns are conducted over four weeks. Each week, a property will usually be open for inspection mid-week and on a Saturday. If you have a strong interest in a property, ask for a contract. Contract holders are sometimes the only people who are kept in the loop and given an opportunity to make a bid when a property is about to sell. Don’t hesitate to call the agent and ask for updates. I like to call and ask for updates once or twice a week, usually at the close of business on Mondays (because they would usually have already spoken to all the other potential ‘weekend’ buyers over the course of the day and you can ask what kind of feedback/interest they received) or Thursdays. If you are in constant communication and know what to listen for, you can watch for weaknesses in the campaign. There may be indicators that the agent is losing confidence and might be willing to deal prior to an auction.
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