Question: How much is your property worth?
Answer: What a willing buyer is prepared to pay.
“Price is the main driver on any real estate transaction however what normally get’s in the way is that most people are greedy.”
Starting with vendors who are selling now, they really need to understand that its a buyers market and prices are on the decline. Should any vendor really grasp this fact and price their property realistically to the market you can still sell in the first 6 weeks of listing and get a good price.
There are 3 types of property markets;
Sellers Market: Generally property is in short supply and there is high demand, properties achieve premium prices because the market is trending up.
Balanced Market: Generally there is reasonable supply and reasonable demand, properties achieve fair prices and the market is stable.
Buyers Market: Generally there is more supply than demand, properties sell for lower prices because the market is trending down.
Let’s look at an example of how bad the swing in prices can be from coming out of a sellers market and moving into a buyers market;
Sellers Market: An example property would sell for $1,000,000 with competition (10%+ premium)
Balanced Market: The property would now sell for $900,000 without competition (Even)
Buyers Market: The property would now sell for $810,000 needing reductions (10%+ discount)
You can see in this example the price swing can be easily up to 20% from top to bottom.
So why are clearance rates so bad at the moment?
The trouble is in my opinion most vendors are aware the market has corrected and they assume that the property just won’t achieve that 10%+ premium and they are just trying to achieve a balanced market price and what is happening in a lot of occasions is that they’re listing their property thinking their price is fair but a lot of vendors are missing the market and are still 10% out due to the market being a buyers market and not balanced.
Why would you sell when prices are possibly 20% down?
Another Question: Why do people buy when prices are 10%+ over the odds?
Answer: You generally buy and sell due to your circumstances, as in you might need to downsize because your kids have left home or you’re getting older and you’re struggling to maintain your property or if you need to upgrade because you’ve outgrown your current home with new additions to the family like kids etc.
This brings me to the next item of discussion, buying and selling in the same market!
If you have to sell your property for less at the moment you will end up buying something for less.
I would also like to add that it’s sometimes safer to do both transactions in the same market rather than sell and rent trying to time the bottom as we don’t have a crystal ball and markets can turn either way very quickly.
You don’t want to sell for less and have the market rally back whilst you’re renting for a year.
If you do end up selling and renting for a year, I’d suggest to keep looking and potentially be prepared to break the lease if necessary should the right opportunity presents itself to buy.
Rental demand is relatively strong so you should in most cases find a new tenant and you might not be out of pocket much should you need to break the lease, however there is financial risk in this so tread carefully and notify your property manager right away so they have plenty of notice in trying to find a new tenant to take over the lease.
Buyers can sometimes be too greedy in these markets too!
I wasn’t just referring to vendors with the earlier statement because buyers are also being greedy too.
There are many occasions where there is a motivated seller who needs to move their property quickly and they aggressively price it to sell.
Generally buyers will spot these opportunities because everyone knows a good deal when they see one.
The problem however is instead of being reasonable and doing the deal quickly, we still find buyers try to haggle too much to try and get the property even cheaper.
What usually happens in these situations is the buyers will get the vendors back up and the vendors rebut not wanting to sell to the particular purchaser or we can end up getting a multiple offer situation due to the delay in negotiations trying to close out the sale.
The buyer who could’ve had it if they had been fairer in the negotiations sometimes either have to pay considerably more to get it due to competition coming in at the 11th hour or they miss out due to another buyer coming in over the top and then they blame everyone but themselves.
My advice is if you see a good opportunity is carpe diem! Seize the day!
Is it better to upgrade or downsize now?
My answer: It is better to upgrade at the moment and the reason why is; (see example)
Example: The Market is down 10% from highs
A seller with a $2Million home is looking to downsize but now only achieves $1.8M in the market due to the 10% correction.
The seller then buys a property for $1,000,000 which would have achieved $1,100,000 in better times.
You can see that the seller had to accept $200,000 less and bought a property that had only dropped by $100,000.
If this same deal was done in the market peak the seller would have achieved $2M then the would have purchased for $1.1M and would’ve had $900,000 to spare less change over costs.
Because the seller missed selling at the top and only sold for $1.8M and then purchased for $1M, they now only realised $800,000 less change over costs.
The seller in this example missed out on $100,000 more in their pocket by not doing the deal whilst the market was stronger.
You can see where downsizing potentially is more affected by the downturn.
Now what if they sell and then go and rent for a year and the market goes back up by 10%?
Well then they purchase the same property which has gone back up to $1.1M and now the difference is $700,000 less change over costs.
This is only an example however the point I’m trying to make is that it is better to upgrade in a down market as long as you can afford to do so.
What are the best buys in the market right now?
Answer: the whole reason for this correction is credit availability and peoples serviceability, so properties in the upper end of the market have suffered the most along with speculative type properties like development sites which have come off probably the most as banks aren’t supporting speculation too much at the moment.
These types of properties have experienced anywhere from 15% (top end homes) to 20-25% (development site) falls.
Tips to sell in this market if you’re thinking of selling or currently on the market and have failed to sell thus far:
Normally your best chance to sell is in the first 45 days period.
Most agents will recommend a 30 day campaign to kick off your sale. (Auction or EOI)
During your 30 day initial campaign (Auction or EOI) if you’ve been unsuccessful before or on the day you will need to set a reserve afterwards. (Private sale)
If the reserve is set correctly you should receive an offer within 2-3 weeks after the initial 30 day campaign via private sale.
You need to try your best to nail the sale during the first 30 days and if you fail, make sure you price it to sell within 2-3 weeks afterwards to try and avoid a longer period of time on market and multiple price reductions.
If you’ve already gone through the above and have now been on the market for 45+ days and have failed to sell you need to review the price immediately and try to position it close to, bang on or a little under where buyer feedback has been.
If there has been no buyer feedback in relation to price you might be way over what it’s potentially worth in this market so just drop the price down to your absolute minimum.
Once you fix the price make sure you reboot the listing back to the top of the internet. Most internet packages have you at the top for 45 days and then after that period you’re at the bottom.
What is the point of fixing the price without fixing the internet position?
There will be a fee to do this but it’s well worth it to promote to the market you’re more realistic.
Remember there are lots of properties out there for sale so you need to compete and sell!
Ok! Now you’ve fixed the price and the internet position so what else can you do?
You could also refresh the marketing with trying a new hero shot as the main photo and or changing the copy a little. (Mainly the heading)
To summarise this;
- INTERNET POSITION
- LOOK AT CHANGING UP THE MARKETING (PHOTOS & COPY)
Just be realistic and you will sell! In this market it all comes down to price, if it’s priced right it will sell!
I do feel its a good time to buy into the market for investment or to upgrade your home and I sincerely wish you the best of luck in your buying and selling endeavours!
If you have any real estate needs that I can assist with please feel free to contact me!