Real estate is like any other market for goods or commodities – when demand outstrips supply prices go up.
When Cyclone Yasi devastated 75% of the north Queensland banana crop in 2011 banana prices rocketed to $15 a kilo. Bananarama smoothies were struck from café menus Australia wide and carrot cake sales eclipsed banana bread for the first time since the 80s. It was a tough time.
But unlike bananas, houses are not homogenous. Each house is different and therefore has it’s own particular market within the broader market.
The broader market for houses in Melbourne right now is possibly the best “macro” market we’ve seen in a generation, with prices up by as much as 10-20% in just nine months.
Yet if you look at the “micro” market of each individual sale, things are still patchy.
We’ve had to reduce our price guides on three of our properties this week due to lack of interest.
There’s absolutely nothing wrong with these properties, we just happened to take them to market at a price above where buyers are seeing value.
This happens when we get value wrong or when our vendors’ expectations are overly ambitious and we quote their dream price rather than a realistic market price.
In this situation we get very limited numbers inspecting, typically a handful or less on the all important first Saturday.
When a house looks expensive (compared to all the other houses on the market) buyers reject it and don’t bother inspecting.
Meanwhile, other properties of similar quality are seeing upwards of 40 or 50 groups inspecting the first Saturday, suggesting the opposite problem – the advertised price is below where the market deems value to be and therefore demand is strong.
Given supply is fixed for an individual house (quantity = 1), price and demand are the only two variables.
Generally speaking, the lower the advertised price, the higher the demand. The higher the demand, the higher the eventual selling price.
Hence why underquoting will always be an issue in our industry, unfortunately.
As agents we often get value wrong. It’s not easy to pick the Goldilocks price where value lines up exactly with both vendors’ and buyers’ expectations.
But there is an antidote to underquoting… Honesty.
The best we can do when we do get it wrong is be upfront about it – be transparent with the buyers and the vendors – and adjust the price as necessary, either up or down.
Ultimately, we don’t dictate price. Vendors don’t dictate price either.
The market will determine how much buyers are willing to pay for bananas after a cyclone or houses after five lockdowns.
For now period homes and banana smoothies are back on the menu and selling well… as long as the price is right.
Feature Image: 48 Packington Street, Prahran