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Empower Wealth Blog post by Empower Wealth

What Causes Auction Property Sales Results to Fly Past the Quoted Range? It is the Agents’ Fault?

Buyers get very frustrated by auction results exceeding quote ranges; and justifiably so. Interested buyers invest emotional energy, precious time, and in many cases, valuable dollars when they shortlist and pursue a suitable property. Building inspections, solicitor’s review fees and travel costs can make a property pre-purchase adventure quite expensive. So why is it that some properties sail past their quote ranges, while others sometimes sell at the top; or even within the range?

There is not just one possible reason. There are actually three.

1. Underquoting

Whether the industry likes to admit it or not, we do have agents who blatantly underquote. Those who do generally do so because they have a philosophy that they will ‘cast the net out wide and catch more fish’, and then the fish whose budgets are insufficient for the property may stretch their budget because they have fallen madly in love with the property. This does happen, so it’s not a misconception. But it’s unfair on the fish who can’t stretch their budget.

Sometimes agents may underquote the property when compared to the vendor’s preferred sale price range because they have been awarded the listing on the basis of telling the vendor an optimistic goal price.

The agents who do this will know that they have let the vendor believe that an optimistic price could be achieved, and then they have to be sure to set the advertised range at a level where buyers will still be interested enough to visit (as opposed to feeling discouraged from pursuing the property based on a sky-high price tag).

Either way, both are not honest, nor are they fair…. But they are industry norm in many parts of Melbourne and the experienced buyers know to expect such antics. Agents use the words “Buyers are educated”, and indeed they are.

We have said it before and we’ll say it again; a serious buyer should NEVER invest time and energy into buying a property if they are solely relying on the agent’s quoted price range to set their budget. All buyers should do their own research (or outsource it) to obtain a more realistic idea of what the property is actually likely to sell for. One reasonably accurate way of determining what a property might sell for is to look at recent comparable properties in the same area. The properties being used as comparisons must be on similar land size, have similar physical features, be of a similar age/era and must have sold within the last three months. In a moving market like the one we find ourselves in now, any older data than three months may not be reliable.

 

2. Scarcity

Properties which are scarce and/or special and attract more competing emotional buyers than genuinely anticipated by the listing agent. Sometimes a property can be inherently special; and perhaps more special to two buyers than other mainstream buyers. Examples of such properties may be houses with granny flats behind them, where an extended family have a specific need to buy that particular house. They know it’s rare, they know that the chances of another coming onto the market soon are limited, and they know that they may have to pay a premium to secure it.

Other examples include iconic properties (ie. Victorian cottages on favoured streets), large family homes in hard-to-secure school zones, beachfront properties, etc. The list goes on. Agents don’t always know how emotional a buyer could be – and we only need two emotionally driven buyers to produce a record-breaking result.

 

3. Good Timing

The last reason is a timing and luck reason. Some properties which ordinarily are not either special OR scarce, but based on market timing and luck, can find themselves without other competing properties at that particular time on the market. When this happens, it just means that the buyer pool isn’t adequately diluted by other competing buyers, and a larger pool of buyers may be fighting over the property that is on offer. This is something that buyers should be well aware of – because in the case where a property is swarming with buyers due to low market competition, buyers should take stock of the conditions and consider whether it’s advantageous to wait it out until the market corrects itself and a more balanced array of properties become available. Winter is notorious for such results – and we often say to vendors planning on selling that they should take advantage of low stock conditions and sell when buyers have little to choose from.

 

The agents who rampantly underquote are often at fault for broken hearted buyers and their out-of-pocket-expenses, but it’s not always the agent’s fault. Do your research; not just on comparable sales, but on market forces, and comparable stock on market.

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