How to know what property price to pay in the current market

Over the past few months, property buyers have been under the pump across Australia. Prices were rising consistently each month in most key locations and, while some markets were slowing, the slight increase in supply was quickly snapped up.

Generally, property owners could almost be guaranteed their price expectations could be exceeded by buyers competing to purchase property before the price went even higher.

My how things change . . quickly

Now, of course, things have changed.  The country has pretty much been split into two – with Perth and Brisbane galloping ahead. Shockingly, the hugely reliable and ravenous Melbourne market has hit the wall . . hard.

We rarely see this kind of thing happen with the premier markets, but it has happened once before. It was a different market but the cause of the problem was for the same reason.

The last time a market just . .stopped . .was Sydney in 2002 when the Carr Government imposed a vendor tax. It just stopped supply in its tracks and caused such a huge imbalance that the tax was abolished in 2004 when the Carr Government was booted out.

This time Government taxation and market intervention is messing with the Melbourne market, causing one of the quickest property value drop of the past 40 years.

Some buyers are being tricked into purchasing in Melbourne by hard selling agents who are talking up the ‘bargains’. Rest assured, this is not a buyers market. It’s a financially tragic market and will trap many buyers who will be in negative equity within weeks of making their purchase.

If you’re considering buying into Melbourne, ensure you’re negotiating $50,000 to $100,000 off the asking price if you have any hope of your property maintaining its value over the next two years.

Pricing mysteries

Assessing price has always been a dark art in the property industry, and it’s still the sneaky secret driving the market across Australia. 

All players use price to their advantage – banks control valuations to determine lending limits, vendors have emotionally high price expectations, buyers hope for bargains, and agents use all this to achieve their own goals.

Not always the villains . . but close this time

While it’s easy to point to selling agents as the villains, it’s important to firstly acknowledge their role is to achieve the best possible price for their vendors. 

Good agents know how to do this professionally, but current market conditions are providing the perfect excuse for the big issue buyers will never know they’re facing = under quoting.

There’s a legal definition for under quoting which relates to overt misleading of the market, but it’s very difficult to prove in ‘normal’ market conditions, let alone in today’s fast changing market.

The game agents play

At the start of the selling process when an agent agrees on a sale price with a vendor, they will agree to a price band.  Then – to attract the maximum amount of buyers – the agent will allocate a ‘guide price’ that will be on the lower end to appeal to buyers. 

This will mean the property attracts a range of buyers, creating competition, driving the price up.  Then . . .surprise . . the property sells for well over the price guide. 

The other tactic you will see is properties advertised with ‘reduced pricing’ . .when the guide price isn’t actually a reduced price.

Buyers can take control

Looking for bargains, buyers will be attracted to the ‘reduced’ or underquoted price which creates competition and gives agents the opportunity to drive prices up.

Love them or hate them, real estate agents are playing this to their clients’ advantage . .which is actually what they’re supposed to do.  As a buyer, you can’t expect them to be on your side.

But there’s something you can do – as a buyer – to take control.  Understand pricing.

How to determine price

In the current market one of the pivotal skills you need to protect yourself and make a successful purchase is to know how to run good comparisons and determine the price to pay for a property.

Get this right and you’ll save countless hours wasting time on property that will never perform, won’t meet your requirements, or just isn’t right for you.

Many buyers think they have a ‘negotiation’ problem, when really success is all about assessing price correctly.

Once you know how to assess price, you then have the ability to compile an attractive offer or confidently participate in an auction that you’ll have a much higher chance of winning.

We have developed a process that shows you how to know what price to pay. You can check it out here.