The price is set by the market

Does the phrase “this is what we need” send shivers down your spine? Unfortunately, the financial position of the seller bears little relevance in a transaction. Ric Mingramm gives his opinion.

Last year, 2012, saw 240,428* houses sold in Australia, down from 267,307 in 2011 and 348,574 in 2009, so yes, it has been a challenging year for the local industry.

In some instances tradies have been the winners, as owners have invested in renovating in lieu of upgrading to new homes. This may mean that some houses are coming to the market in better condition, or they may come onto the market later as owners attempt to enjoy their new surroundings.

The median capital growth percentage for houses dropped 4.5 per cent in 2012. Still, amongst all this doom and gloom, on average just over four houses sold every week in 2012.

The single largest encumbrance to securing a sale remains price. In the current financial environment financiers are extremely conservative and diligent in determining the parameters for lending, so if the sale price is not within the tolerance that the financier expects then ‘finance approval’ is often not given, or the buyer is asked to provide more deposit.

One of the phrases that makes agents tremble is ‘This is what we need…’ Unfortunately the financial position of the seller bears little relevance in the transaction; a buyer is not likely to pay more to compensate for bad markets, poor decisions, over capitalisation or a myriad of other factors.

The definition of the value of a property is what someone will pay for it. This is why agents provide (or should provide) evidence of past sales of similar properties to give an indication of a likely sale price.

It is important to note that real estate agents don’t set the sale price of a property. We may set the advertised price, or we may indicate where we believe a property may fit in the current market, but we do not set the sale price.

There is no exact price for real estate; the reason for this is that the market determines the value and the real estate agent and seller determine the list/advertised price. As sellers we need to be aware that there are five recognised factors that determine whether a property sells, and it is worthwhile understanding who controls these factors:

  • Finance: those men in clean pin-striped suits determine this
  • Location: well, it is what it is!
  • Property condition: that is something the seller controls
  • Listing price: that’s something the seller (with the agent’s input) controls and it’s the market that determines whether this price can be achieved
  • Marketing: this is managed by the agent in consultation with the seller.

Buyers determine the buying price using research and take into consideration the above criteria. Every seller believes their property is the best; however, location is the fundamental control of value and represents the majority of what a home is worth, then size (yes, size does matter!) and from there buyers compare a property’s amenities, features and quality.

Just remember: everyone has an opinion on the value or price of a property. Buyers believe it’s lower and sellers believe it’s higher; the market is the only thing that really counts.

Sales are still taking place, so if a property hasn’t had an offer then it probably is down to one of two things:

  1. Buyers have seen it but not offered or bought it; then, Seller, we need to fix the pricing!
  2. Buyers haven’t seen it; then, Seller, we have to fix the marketing and promotion!

It really isn’t any more difficult than this.

Buyers researching property values should bear in mind that in the past a slow sales market, with moderate capital values and improving rental profits, have made perfect conditions to buy a property that is likely to achieve good returns for an investor.

There are plenty of tools available, either free or for a small price, for buyers to gauge the current likely market value of a property. Those that fall outside the standard deviation on price need to be exceptional in some respect, or they will be disregarded in the property cull by buyers.

*Figure to October 2012.

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Ric Mingramm

Ric Mingramm is a licensed Real Estate Agent and Auctioneer in NSW and QLD and has recently joined PRD Nationwide North Lakes as Sales Manager.