November 2014 - Underquoting nightmares
By Rich Harvey, Managing Director propertybuyer
Have you ever been frustrated by underquoting and seeing prices fly over your head? The auction clearance rates are still at record levels and the market looks set for a strong finish to the year. But how should you deal with underquoting in a hot property market...
In this edition we look at:
- Is the new price right? Underquoting nightmares
- Client Stories
1. Is the new price right? Underquoting nightmares
One the greatest frustrations that buyers express to us in the current market is the frequent level of underquoting. Have you ever been to a home inspection and got excited at the prospect of securing a home within your budget with the online advert saying “offers over $900,000”? Then you suggest to the agent you could pay $905,000 and they just burst out laughing and your initial excitement turns to dismay when you discover the likely selling price the vendor would accept is around $1.1m….back to searching again – and feeling like groundhog day.
Or worse is the traditional auction campaign. Agents are quoting a property as “bidding from $1.1m” and you think you are chance with a $1.2m budget. You then diligently do your homework and get a pest and building inspection completed, organise your solicitor to review the contract and get your deposit ready. However come auction day, you don’t even get to put up your hand when the first bid comes in at $1.2m which was your limit!! To rub salt into the wound the property ends up selling at $1.396m almost $200,000 over reserve.
These are the typical war stories all over Sydney, and some parts of Melbourne in the current property market. RP Data report that Sydney, and to a lesser degree Melbourne, continued to be the main drivers of the increase in home values. Over the past year, Sydney home values were 13.1 per cent higher, while Melbourne values were up 8.9 per cent. Brisbane was the third best performing capital city for value growth over the year with values up 5.6 per cent followed by Darwin where values rose by 5.0 per cent. Elsewhere, value growth was more subdued with increases of 3.4 per cent in Perth, 4.3 per cent in Adelaide, 4.4 per cent in Hobart and 0.9 per cent in Canberra. See graphic below for current days on market.
So why does a Sydney real estate agent like to underquote? Quite simply, agents like to create strong competition amongst buyers. Bait pricing brings in more inquiry and inspections and gets more shoe leather through the door. Home buyers have a strong emotional pull to buy property. We see it as our birthright, a status symbol, that we’ve made it into the market, a place to raise our young, our “Castle” – whatever the motivation, home buyers have the ability to pay more for a home than the investor. Agents like to capitalise in this emotional driver and will use all the right lines like “I’m sure you will be happy here for a long time – what’s another $50,000 spread over 10 years”.
Can you imagine the uproar if you went into a car showroom and after inspecting a lovely new car that was advertised at $39,900 discovered that it was simply bait pricing to get you pay over $50,000 for the real thing? While there are regulations to prevent widespread underquoting, it is a problematic issue in a hot market like now. Sometimes agents simply under-estimate the strength of demand for a particular property and quote a price too low as they did not foresee such hot demand.
So what are my tips to deal with underquoting in a hot property market:
- Do extensive sales research – attend auctions, track private treaty sale prices and watch the trends.
- Understand and observe agent tactics - each sales agent has a different modus operandi. Some are very transparent while others are a closed book. Some agents list prices close to final sales price while others underquote consistently. Know thy local agents.
- Be prepared to walk away – it is very easy to make a major pricing mistake in this market and pay too much. Stick to you limits and budget.
- Engage a buyer’s agent professional help. As Sydney and Australia’s most awarded buyers agents we can give you an unbiased opinion on current market value and then step in and negotiate the best price. This removes the emotional aspect and common frustration of trying to work out the right price to offer to get a “YES” from both the vendor and agent.
So what is the “Right Price” to pay? Look for relevant and recent comparable sales. Property prices are a function of supply and demand. Amenities, housing styles, demographics, transport, shops, schools, parks, beaches, water, cafes, all contribute to the relative desirability of a suburb. Then look at the property features itself. Too many people mistakenly think it’s about the number of bedrooms when location, position and location are more paramount.
Be prepared to compromise unless you have an unlimited budget. But don’t leave your decision making too long. It’s not a nice feeling to watch the ship leaving the shore if you are priced out of a market.
To avoid being left behind, call my friendly team of buyers' agents on 1300 655 615 or + 61 2 9975 3311 today to discuss your requirements or email us your buyers wishlist.
Rich Harvey is founder and Managing Director of www.propertybuyer.com.au, Australia's most awarded Buyers' Advocates. Propertybuyer helps property investors and home buyers search and negotiate the right property at the right price, every time. Visit www.propertybuyer.com.au or call 1300 655 615.
2. Client Stories
Here is some feedback from our a few of our happy clients last month!
"propertybuyer solved our concerns...."
Buyer type: Homebuyer
Location: Eastern Suburbs, Sydney
Buyer’s Brief: 3 bedroom apartment in city
We wanted to find a reasonably sized three bedroom apartment in the local area. We had done six months ground work but wanted access to off-market and negotiation help. Our main worries were not finding a property before our lease expired.
Propertybuyer solved our concerns by conducting the search, gave us price comparables, offered excellent negotiation tactics and helped with paperwork and logistics. Afterwards we felt very satisfied and it was well worth engaging propertybuyer. Anna was fantastic.
“Well worth it, Anna was fantastic..."
Buyer’s Advocate, Anna Rorke
Greg & Mary had been looking for some time prior to engaging propertybuyer. IT was very interesting showing them properties they may not have thought about viewing or may not have had the opportunity to view in the past. The apartment we purchased suited their lifestyle and accommodated their need for space and I am sure they will be very happy with the decision when they move in.
If you are interested in any of the above please contact Jason Low (Manager- Client Relations & Strategy) 1300 655 615 or 02 9975 3311 or email your enquiry to firstname.lastname@example.org
To review the full details of these opportunities you will need to sign a simple confidentiality agreement which protects our interests in the property. If you purchase a property, a fixed sourcing fee will apply.
We look forward to assisting you.