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Pricing a property to sell in Melbourne

Discussion in 'The Buying & Selling Process' started by Perthguy, 22nd Oct, 2015.

  1. Perthguy

    Perthguy Well-Known Member

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    Has anyone ever wondered why houses in Melbourne always seem to sell well over the list price at Auction? A place can be listed for sale with a price range of $690,000 - $760,000 and then get passed it in at $820,000 at Auction. It's strange because deliberate underquoting is illegal in Victoria. I might have found an explanation:

    Under the rules, a reserve can be set by a vendor at the eleventh hour after a traditional month-long campaign.

    Vendors are able to set the reserve on the day of an auction, and it can be higher than the advertised price if interest is strong.
    http://www.domain.com.au/news/under...e-agents-under-investigation-20150824-gj6d42/

    Basically, agents can set a "conservative" price to attract buyers during the marketing campaign and then vendors can set whatever reserve price they want on Auction day based on "strong interest" during the campaign. I am not suggesting this is deliberate but I was asked by my agent not to disclose my reserve price until Auction day. In a way, I guess that is fair enough because I don't have a reserve price in mind and I need the agent to advise me of the buyer feedback during the campaign in order to set a realistic reserve on Auction day. How am I supposed to price the property in the meantime?

    Set the price too high and we won't get the buyers through to give us realistic buyer expectations on price. List too low and we mislead the market, which is wrong.

    I must say that I find the whole process very confusing. Pricing a property is a lot more straightforward in Perth.
     
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  2. Big Will

    Big Will Well-Known Member

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    Same as when you purchase.

    Set your minimum price you would accept (buyer pref/your least pref), a likely price (looking at comparable properties but honestly) and a high price (your pref price/buyers least pref).

    Listen to the feedback of what the market/REA is telling you and reassess you numbers.

    If you feel really uncomfortable you can also pay for a certified valuer but you should be able to work out what you think it is.

    Set your reserve at the likely price but if it is slightly short you can always make that decision (if it isn't lower than your lowest price) or the REA might say to not lower it as there is more interest but someone cannot bid at auction for whatever reason (most likely finance) or we have a lot of people sitting on the fence.

    The reason why agents price it lower than what is likely to be the expected price is to get more people interested as it is more appealing and more pressure to have 50 people there than 5. Also there is a common theme that you need to add 10-15% to the advertised price to be in the ball park (again depends on the REA office).
     
  3. Perthguy

    Perthguy Well-Known Member

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    Thanks Big Will. This is the part I have a problem with. I would prefer to be honest about the price but if I am, people will add 10-15% to that and then think I have overpriced it. So I am forced to deliberately underprice because everyone else does, even though that is illegal.

    Anyway, I have found a realistic comparable and priced according to that. The REA is happy with our pricing strategy. I don't have a problem setting the reserve on the day, it's just a matter of getting to auction.
     
  4. Big Will

    Big Will Well-Known Member

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    Yes it is annoying but it is what the market does, if you want to do it at your sale price people will look at the photos and go this property isn't worth 1M as I can get this house for that price so then your opens have no one through or very few. Then come auction day if flops as people with 1M are looking at the quoted 880k+ properties and the buyers with 800-900k are looking at the 700k+ properties.

    Also it is only illegal if the authority has been signed at 800-880k price from your side and the REA is advertising it at 700+ as it is below your minimum price.

    However most agents will put on the vendor price TBA to get around this, hence why he is asking for your reserve on the day.

    The REA agent knows roughly what the property will go for but he wont write it down on the authority for the same reason of why he cant quote lower prices or if he has written down the advertised price you are using ;).
     
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  5. Perthguy

    Perthguy Well-Known Member

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    I understand this part. Based on recent sales, I do have a ballpark of where I think it will go but I do not have a reserve. It really depends on how the market responds to my particular property. We won't know the reserve until after the marketing campaign.

    We have solid evidence for the asking prices based on comparable sales, so we are covered from that point of view. Any increase on that price at Auction will depend on strong interest during the campaign.

    The whole process makes sense it's just arriving at that initial price that bothers me because of widespread underquoting that is well known in the local market.

    I guess it is hard for us to adjust to because we have the opposite system in Perth. We price high and buyers bargain us down. In Melbourne they price low and try and get the price higher on Auction day.
     
  6. Big Will

    Big Will Well-Known Member

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    You cant compare an auction advertised price to a private sale.
     
  7. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    This comes up every boom period. Agents quote below the reserve knowing full well that competition at an auction will drive the price well above that quote.

    When the market is quiet or moving downwards (yes it does happen in Melbourne), agents quote the price and the purchasers then try negotiate downwards. This has also been known to work.

    This is all part of the market cycle. People relying on the agents quote for the price simply aren't doing their own research properly.
     
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  8. Big Will

    Big Will Well-Known Member

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    100% agree with you Peter, I have I got a PM one time from @MKH in an area I knew nothing about and I was $5,000 off what it sold for.

    I didn't visit any properties I did this purely by comparing the sold section and what is for sale on realestate.com.

    I have also done the same for my uncle and aunts in another state and was within $10,000.

    It really comes down to peoples DD.
     
  9. Perthguy

    Perthguy Well-Known Member

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    This is true. I am in Perth and the private sale system is the one I am used to. I'm not used to Melbourne's pricing low but not underquoting ;) system. It's confusing for me.
     
  10. Perthguy

    Perthguy Well-Known Member

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    It's actually illegal to quote below the reserve. That's why agents don't ask for a reserve until auction day.
     
  11. Big Will

    Big Will Well-Known Member

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    I was born and raised in Brisbane and it is very similar to Perth. Asking price and you negotiate lower.

    Melbourne's is just different not that one is better than the other however as a vendor I would rather have no price ceiling but as a buyer I would prefer the vendor to disclose their cards.

    I like the auction system which was another thing I had to get used to but it really favours the buyer unless buyers get emotional. Reason it favours the buyers is that you can see what your competition is bidding compared to private sale where you cannot see if there is anyone else and if there was what they are bidding.
     
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  12. Big Will

    Big Will Well-Known Member

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    It is why they wont ask you for your price and put on the authority form as they cannot market it lower than that price, which can ruin an campaign.
     
  13. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    Every boom this comes up, they introduced laws about it years ago. Every boom the laws get revised, an agent or two gets slapped on the wrist for being too obvious about it.

    My wife and I noticed agents consistently under quoting by 20% back in 2000. Rather than whining about it, we started figuring it out for ourselves.
     
  14. Perthguy

    Perthguy Well-Known Member

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    Not sure if you caught the first part of the thread but my problem was pricing a property to sell. I didn't actually care about the underquoting as a buyer. It's not very hard to figure out what is going on. But as a seller, the pricing strategy and underquoting is difficult for someone new in the market as a seller. You are not allowed to deliberately underquote but if you price your property at the market, you know buyers will add at least 20%. That would put your price way over market and it is likely to be largely ignored. So you need to underquote, without deliberately underquoting, because that is illegal.

    Also, I am not having a whine. Because we don't know the system and how it works, pricing was very difficult for myself, my investment partner, and our real estate agent. Anyway, the price has been set now so this thread can be closed.
     
  15. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    @Perthguy my apologies, I'm not having a go at you with the whining comment, I'm having a go at the purchasers who whine about agents under quoting. I do agree with your comments.
     
  16. Perthguy

    Perthguy Well-Known Member

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    No problems :)

    I agree also regarding whining buyers. The system is the system and it works how it works. Coming in from Perth it really didn't take us long to figure out. Once you know how it all works as a seller, it's very easy to navigate too. Once again, it works how it works. If I knew how it all worked from the start, pricing would have been very painless as I follow the market.

    The only trap is for people selling who are new to the system. Still, first world problems hey? :)
     
  17. Perthguy

    Perthguy Well-Known Member

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    There is a follow up to this with the agent playing games with the reserve price. He wanted us to do set a very low reserve too. He was not happy when we refused. Still, on the day we got a genuine bid at our reserve price at auction, so I feel like we were vindicated. :)
     
  18. Barny

    Barny Well-Known Member

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    How did the sale go? We're ya happy. Emotions run wild?
     
  19. Perthguy

    Perthguy Well-Known Member

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    I was selling an I.P. No emotions, it's all business ;):)
     
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  20. Perthguy

    Perthguy Well-Known Member

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