John McGrath – What’s your property worth?
It’s no secret that the Sydney and Melbourne markets are starting to cool down but let’s put that change into context. In March, median home values fell by 0.2% in Sydney and 0.1% in Melbourne. In February, they fell by 0.1% in Sydney and were flat in Melbourne. Translation: these markets are stable and moving into the price consolidation phase of the cycle, which is exactly what we want to see after phenomenal but unsustainable annual price growth of 25% and 15% respectively in 2021.
What’s happening in Sydney and Melbourne is typical at this stage of the cycle. Owners who were waiting for the peak to sell to maximise their capital gains unfortunately may have missed that window of opportunity. They’ve realised this and are coming to market now to catch the late stages of the boom. This has increased the number of homes for sale, and as a result, buyers are not feeling the same urgency as last year.
Now, that’s a very macro-level view. The most desirable pockets of Sydney and Melbourne are still going strong because they’re always tightly-held. You’re never going to see a flood of supply in Toorak or Vaucluse, so we continue to see strong sale prices in each city’s best neighbourhoods.
Everywhere else, the best quality homes in the best streets are also still selling very well. It’s the homes that have some sort of compromise, such as a main road location or a poor aspect, that become a bit harder to sell at this point. Buyers have more choice so they’re naturally looking at their best options first.
This phase of the cycle can be very difficult for vendors. They’ve spent the past two years watching home values in their area skyrocket. They’ve read about jaw-dropping auction sales in media reports. And now that they’ve finally decided to sell, they don’t want to believe the market isn’t red hot anymore.
Very often, a vendor’s self-appraisal of their home’s value will be out of line with the market. It’s natural to be proud of your home but that can make you biased. A little pride mixed with a dash of misinformation can put your expectations way above fair market value. This is magnified during and after a boom. Pricing is probably the most difficult part of the selling process for vendors to come to grips with. A vendor’s biggest challenge is usually understanding and getting comfortable with the fair market value of their home.
The cardinal rule of pricing is that the selling price for your home is determined by the buyers. You can put an asking price on it, but the selling price is what a buyer is willing and able to pay.
How to work out what it’s worth
Pricing a property comes down to comparisons, and it’s more of an art than a science. The agents you interview will give you a list of comparable sales, or you can find them yourself on the major portals. No two homes are identical, so you need to adjust for any differences to determine your likely selling price range.
Another tip is to attend some open inspections. Open provide a wealth of information for sellers. Spend a couple of Saturdays seeing what’s on the market and what prices are being achieved. The key issue to consider is, “How does this property compare with mine”. If you can acquire some first-hand knowledge of prices, you’ll be able to verify the agents’ valuations of your home.
Another option is to get an independent valuer to appraise your home. Valuers are highly trained and unbiased. They use a formula based on comparable sales, the size of the land and home, and the condition of the home and improvements. You’ll get a written appraisal, which might give you the confidence to make an informed pricing decision. Just remember, valuers don’t factor in the emotion of buyers. That’s part of the marketing process and what a professional agent will do in their negotiations to get you the highest price.
The key to extracting a premium price for a property – in any location, at any time, in any market – is emotionally connecting a number of buyers to your home and creating competition between them.
Why it’s important to price it right from day one
One of the great mistakes vendors can make is putting an inflated price – a hopeful price – on their property. They figure if no one makes an offer at that level, they can always bring the price down.
The challenge here is that when a home takes more than a few months to sell, the rumours start. Everyone wants to know what’s wrong with it. People start focusing on all the negatives to do with the property.
There’s a phenomenon in selling real estate that I call the ‘buyers’ wave’. What I’ve found is that the first three to four weeks that a home is on the market is when you get the maximum amount of buyer interest.
Think about it. Unless they’ve started looking this week, buyers are mainly on the look-out for NEW listings. After a few weeks on the home hunt, they’ve probably seen most of the suitable properties in their preferred areas and price range. So, when a new property hits the market, there’s a great flurry of buyer activity, with lots of people attending inspections. If they like the home, buyers will express some interest, otherwise they’ll move on to other listings. After four weeks, buyer interest tends to tail off quite dramatically.
Like it or not, the property market is very price sensitive – especially after a boom when the fear of missing out has been replaced by the fear of paying too much. That’s what’s happening in some parts of Sydney and Melbourne now, so work closely with your preferred agent to ensure your price guide is right from the start.