VERONICA'S BLOG - Go behind the scenes of Ep 1 of Location Location Location Australia.
The Inner West of Sydney is a very auction oriented area and there are certain rules of the game that you need to bear in mind in such markets.
Firstly, you need to be aware of how a quoted price or price range comes about. Basically it is the lowest price that the agent thinks he or she can get away with quoting. And what they can get away with depends on a number of factors, not the least being their legal obligations and requirements imposed by the Office of Fair Trading.
Now before an agent lists a property, they usually conduct an appraisal and pitch their proposal against other selling agents. There is often a temptation to put a high estimated sales price if they think that will increase their chances of winning the listing. Many otherwise level headed property owners can get blinded by a little price flattery. So in order to make these estimates more realistic, the agents are required to provide evidence of how they have arrived at their suggested sale price. What usually happens is that they end up providing a range. What they really believe is at the lower end and what they think the vendor wants is at the upper end. This is the range that is written on the agency agreement and they are not allowed to quote a lesser figure.
However, the vendor probably won't sell at the lower end of that range without some heavy persuasion and they would need to be convinced that nobody would be prepared to pay any more. Thus begins the conditioning process, whereby the agent seeks to close the gap between what they think the property is worth and what the vendor wants for it.
Now sometimes the vendor is right and buyers are prepared to pay more than the agent thinks. During an auction campaign it is not uncommon to receive pre-auction offers, as David and Marie decided to do. In most auction campaigns there is not much point putting in an offer under the quoted price, so you would expect a serious attempt to buy prior to auction would take the form of a greater figure. Every time the vendor rejects an offer, the agent is required to increase their quoting. And if there is only one buyer at that higher level, that can really sabotage their campaign.
So, when David and Marie fell in love with the newly built the level house in Lilyfield, they decided they wanted to try to buy it prior to auction. The agent was quoting "$1.5M+", which can usually be taken to mean they are trying to reach $1.6M. After looking at recent comparable sales we could see that $1.6M wasn't an unreasonable price to pay for the home, however that was at the top of David and Marie's budget, so it took a deep breath on their part before they decided to bite the bullet and offer that figure. In order to increase their chances of success they presented their offer in the form of a signed contract, with a deposit cheque attached and a 66W certificate, which their solicitor had provided to waive the cooling off period.
But we had an unexpected hurdle to jump before we could do this. In NSW agents are not allowed to show property until they have a contract of sale but in this case the contract was not finished. Integral to our offer strategy was that we try to buy the property prior to the end of the week, so there would be no more open houses. But you can't buy a property without a contract. So after a lot of hassling on our part, a contract was finally procured on the Thursday evening and we we able to present David and Marie's offer by the Friday evening.
My personal opinion here is that the agent was quoting a bit low from the outset but we were surprised when the vendor's response to the offer was "no, you would need to be between $1.6 and $1.7M".
So plan B was to go to auction but not before we ensured that the agent had adjusted their quoted price to reflect the fact the vendors wouldn't accept $1.6M.
At the moment it is widely believed to be a buyers market throughout the country. In Sydney it is no different, though in the Inner West we constantly see that good property still attracts good interest from buyers. We believe this property to be no exception, however the quoted price range is an essential component required to generate competition. If the agent was allowed to continue quoting $1.5M+ I have no doubt that he would be able to build substantial interest and have a competitive auction. However, by being forced to increase his quoting we are hoping to dampen his efforts.
The fact is that buyers are cautious at the moment and reluctant to compete if they think somebody else is already prepared to pay top dollar or if the vendor has unrealistic price expectations. And we have been at many auctions recently where there has been good interest in a property yet high vendor expectations have ended up causing a sluggish auction. So there was still hope for David and Marie.
However the following week the agent informed us that the vendors had struck a price that they would sell for prior to auction. At $1.65M it was a stretch for David and Marie but they really wanted the house and were not convinced that they would easily find another that was so suitable for their needs. So they made the decision to go for it. Yes, they may have got it for less at auction, but they also ran a very real risk of missing out on it and that was a risk they didn't want to run.
If you would like to read more of Veronica's insights on the property market, particularly in her own backyard of inner Sydney, go to Veronica Morgan’s blog.