Three things to do if you want to know the truth about a property's value. Giving a deliberately low unrealistic price guide to a buyer is illegal. Agents claim they don't under quote. My industry constantly argues that the incidence of under quoting is rare, that the vast majority of agents follow the rules. Most buyers now say they ask an agent for a price guide and then add 10% or $200,000 to estimate the real price.
Here is what to do to get the real answer. Read more.
My having to tell you these strategies hurts. It's not that I like the secrets or that you knowing the truth about a property's value will in someway hurt the seller or make my job harder. The reason it hurts is because it's the only way I can realistically see you protecting yourself from being mislead.
Running an auction is like doing public speaking, you are totally exposed. I've seen salesmen who are great in one to one situations but become garden ornaments at auctions, unable to talk to buyers for fear they will push them away. We've all seen auctioneers get aggressive and bossy because people won't start the bidding, won't bid in amounts they want or as quickly as they want. I have been in a large real estate franchise meeting when sales people were told by the auctioneers running in-room city auctions to bring in a few 'friends' to help start the bidding. Dummy bidding, people bidding who were not serious about buying has always been illegal. The requirement to register bidders was the previous state government's attempt to make the illegal behaviour easier to prosecute. In other states they have now made it illegal to use price guides. Agents have screamed that such laws aren't necessary. They are.
But why do buyers ask if they know they are going to get a lie?
A number of reasons. Some work on the idea that by adding the $200,000 or 10% or what other experience they have had, they will get the right figure. Another reason is because they use the price as an indication of what the owner is expecting. I go up against other agents for new business all the time. The prices they quote sellers and the prices they quote buyers are nothing like each other.
So here are three things to do if you want to know value;
First, Stop asking. I know that doesn't sound that helpful but it will stop you dismissing property that could be the right buy. I watched an agent in the northern beaches market a property with a price guide of $850,000. I was at the auction. Only one person bid, and they only bid once. After a lot of to and fro, the property sold for $820,000, a little under its true value. What happened in the following days is the real point. The agent had a number of angry calls from buyers who saw what it had sold for and were complaining that if they hadn't been mislead they would have paid in the $800,000s. They were mislead by an agent in accidentally getting the price guide spot on by adding on their 10% 'liars margin' the buyers thought that the owner wanted too much.
Price guides are not an indication of what the owner wants, what the level of interest in the property is, or what buyers will pay. It is driven out of/guided by what the salesman thinks you want to hear so that you will be interested in the property enough to dismiss other property you are looking at.
Second. Don't just look at the property, look at the other buyers. You might think that agents know who's a real buyer and who's not. If you think that then that's another myth you might be surprised to find is rubbish but that's a discussion for another day.
If you are looking for a three bedroom home between $1.1 and $1.3 how many homes will you have looked at before buying? The answer might surprise you. 426!!
This is a profile of a typical buyer that News Corp put together from extensive research they did through Realestate.com.au
They’ll spend 5 lunch hours a week trawling through 426 property listings online, and several tea breaks finding the best variable interest rate. Every Saturday, they’ll drive 3.2 hours around town to view prospective homes. He’ll spend 12% of this time arguing with their GPS, but on average they’ll make it to 3 properties. 2 of which are indeed average. And 1 that could be the one. Despite the oven being too small.
Come Sunday, they’ll head to their favourite breakfast hotspot and spend 2.4 hours dissecting the paper; discussing which houses in what suburb went for how much, and when. And an additional 56 minutes comparing house wish lists (his has a wine cellar; hers a bath with feet).
It’s exciting times for Paul and Tess. We have another 1,863,000 home buyers just like them nationally, hunting for a home to call their own.
'Exciting', maybe, frustrating, more like it. But here's my point. If you are a buyer out looking, do you see the same people at different opens? When you go to auctions, do you see some of them bidding, missing out or holding back? At our last auction the buyer knew the underbidder better than we did because they had been to all the same Auctions. Think about it, if you are really interested in a property, how much will you tell the agent about what you have seen, what you will bid to, what your other property alternatives are? But as a buyer, you probably already know your competition!
Third. What's it worth? Wrong question! What's it worth to you?
If you have been looking on the Internet for a home (the typical buyer will have looked for 9 months prior to buying, again what Realestate.com.au does know about buyer behaviour and, for that matter, agent thinking, probably isn't worth knowing) you will know the difference between good and average. This is a home you'll have for 24 years on average. Not one seller I have talked to complained about paying too much for their home 24 years ago. They might have thought it expensive then but buying the right home means you will probably keep it longer, be happier and pay far less in agents fees and stamp duty by having to sell and buy more frequently.
So the question should always be 'what is it worth to you?' But because everyone wants reassurance, this is how you can do the job of valuing and probably better than the agent. Get a list of sales in the suburb, for the last 6 months, in a 20% price range around what you suspect value to be, not the agents opinion of value or it will be useless (that hurt to say), 10% above and 10% below.
Now there is a trick to this that everybody misses. Not every property sale is useful. Take a pen and cross out every property that is nothing like the one you are looking at. Too many people think they are working out value when all they are doing is averaging. I could say, if you wouldn't buy it, it's not relevant but that's dangerous because we get people saying, I wouldn't buy that, the curtains were hideous. Use this as a guide, if it were on the market now and it was for sale at the price sold, would you look at it?
The market is multiple sub markets made up of young couples, investors, large families and so on. Some property is ideal for one group and next to useless for another. You are competing against buyers who in the main are similar to you. The properties sold are a reflection of the buyer types who bought them. And so are the prices. Filter! Use the information as a guide, not as a law.
And as a gift to you, since you have read this whole newsletter and thank you for doing so, if you email firstname.lastname@example.org and ask for a local market report she will email one back to you. We have sales data across 2111, 2112, 2113, 2114 & 2115. Tell her the value point and postcode and she will email you back a report that covers the last 6 months with property sales that are 10% above and 10% below your nominated value point.
When you get the report, emulate the radically different properties to the one you are looking at and then go for a drive and have a look from the outside of a few of these homes. You'll be far better informed than the agent, the other buyers and probably even your bank and lending manager.
Then last step, do you like it?