Price Guides - Can You Rely on Them?

Selling agents often use a price range when advertising properties for sale. As a buyer, it can be frustrating to see a great home advertised within your budget only to see it sell well beyond your upper limit. Just how much can you rely on price guides as an indication of the eventual sales price?

There’s no hard and fast rule.

Some agents list properties in a manner that we’re used to; it has a price, it’s negotiable, and after some back and forth with offers an eventual price is agreed upon that may be a little below the advertised price. Now, we have such a dominant auction culture in Canberra that the way the game is played has evolved. Buyers are overwhelmed with varying adverts between specific price ranges, no price guide at all, ‘plus’ campaigns (eg. $600,000+) and “offers over” advertised prices. It’s no wonder buyers are feeling frustrated.

So shouldn’t we have more legislation to make price guides clearer for buyers?

Other states and territories have introduced underquoting legislation in an attempt to stop buyers from complaining about sale prices far exceeding quoted prices. This disparity between the two figures is not purely the fault of the selling agent though. Hear me out. In a rising market, it can be very tricky to accurately price a property. When supply is limited and demand far outstrips the number of good homes for sale, prices will rise. And often very quickly. I’ve seen months where suburbs put on $50k, $80k, even $100k in a matter of weeks - buyers panic and get emotional, and pay top dollar to get that new home. Underquoting laws are often introduced after a steep rise in median values as some buyers who missed out are feeling upset and the media cottons on to an emotive story, and then Government feels it needs to do something quickly, so the rules are changed.

What I’ve heard from others working in jurisdictions where underquoting laws have come into play though, is that the new rules don’t have the desired impact. Surprise, surprise. The player adapt to find a new way to play the game and the ones who really lose out are in fact the buyers. I’ve heard and seen that as sales agents became wary of giving any price indication at all, price guides disappeared and buyers were left without any price range to work with. Some might say that’s not really too different to what we have now, but I’d rather see some loose guidance than nothing at all. I’m of the opinion that we need to keep the conversation going and improve education for buyers rather than looking for a quick fix to a problem that will never disappear.

Buyers and sellers will always have fundamentally opposed objectives.

There are of course times where the selling agent will price a property on the low side in an attempt to increase interest and attract high volumes of buyers to their open homes. Sometimes an agent is working outside of their local patch and honestly doesn’t know the prices that well (they also overprice some properties - it does happen!) but other times they are pitching it low to entice interest. The hard part for these agents though is managing their buyers to ensure that they will offer a price that their client, the vendor, is willing to sell for. If they price it too high, the property will be perceived as too expensive and they won’t attract any competition for their vendor. If they price it too low, the buyers who miss out will be upset. Guess which one the sales agent is more concerned with. As the industry saying goes, Price it low watch it go, Price it high watch it die. It’s important to always remember they’re paid by the vendor to get the highest possible price.

Here is where the fundamental conflict lies.

Buyers are relying on the sales agent to tell them what price to pay. I strongly object to this, and always recommend that buyers do their own homework before spending a million dollars or thereabouts. A million dollars. Serious coin that needs to be given due weight with research and consideration, especially when you think about the fact that loan repayments can blow the final price you actually pay for a property well beyond the purchase price.

Now we’re not dealing with whitegoods here; no two properties are exactly the same. Even if two identical units are sold, (not off the plan - that’s a different ball game) the vendors will be different, their reason for sale and motivation levels are likely different, the agent involved in the sale is different, and the market conditions at the time of the sale can play a large role. Add to this the complexities of two different houses, different streets, different pockets of the suburb and it is rarely an exact, singular price that you end up with. When I give pricing guidance to my clients, it’s given within a range that reflects what would constitute a great purchase, what’s likely to be paid, and where an upper limit/walkaway price lies based on my research. The aim is to make that range as tight as possible to give my buyers accurate information they can rely on, backed up by evidence.

I’m frustrated to hear stories of buyers who feel ripped off, or hard done by when dealing with selling agents. They are not there to work for you! As a buyer, it’s your responsibility to ascertain the price you’re willing to pay. Do not rely on opinion alone or advice from someone who is paid by the person selling the property, who is being paid to get the best possible price from you. Or worse still, the advice from a well-meaning friend who has little experience or knowledge to contribute. Their opinions are given with good intent but unfortunately it can really derail you.

The better question perhaps, isn’t can you rely on price guides - it’s should you rely on them?

When it’s time to buy a new car or book a big holiday, there’s often much research that goes into the decision. Hours upon hours spent looking and shopping around before committing. Buying a home is a far greater financial investment and can have significant ramifications on your financial future when you get it wrong (and I’m happy to say, also impact you positively when you get it right!). I’m all about buying the right home at the right price. It’s well worth investing the time to build up your knowledge before committing such a huge sum of money. We need to acknowledge that the selling agent may not be the best place to seek advice on price unless you want to pay absolute top dollar and make the vendor very happy.

So how do you figure out what to pay?

There’s almost too much information out there these days. It can be overwhelming trying to study, learn and interpret the importance of auction clearance rates, days on market, vendor discounting averages, median trends… the list goes on. Don’t lose sight of the forest for the trees. It takes months to build up market knowledge to price accurately. I’ve been refining my system for years, and I know it’s difficult as a buyer going it alone. It sounds self-interested of me to recommend using a buyer’s agent but if you know my story about how I got into this gig you’ll know how passionate I am about equal representation for buyers.

Engaging a buyer’s agent (and a good one) gives you peace of mind and advice you can trust. If you’d like to know more, get in touch.