How much above the quote range will it sell?

This is a common question, particularly in a heated, seller’s market.

I’ve heard so many ‘rule of thumb’ ideas, and some of them are concerning at best, and costly at worst. Some prospective buyers apply +15% stretch, assuming that either all agencies are underquoting, or all competitive bidding is driving the price to this arbitrary figure.

Some prospective buyers have charted recent campaigns and formulated a broad correlation between the advertised price and the resultant sale price for the properties of interest.

Applying a ‘rule of thumb’ excess to a budget is a dangerous way to buy property. Aside from the risk of overpaying, the buyer could also find themselves caught up in a distressing situation if a valuation shortfall strikes.

Nobody wants to lose their deposit and lose the property due to tardiness.

Rather than applying an arbitrary percentage increase to a price quote, prospective buyers need to be prepared to do some homework, because campaigns, auction quotes, private sale quotes. and resultant prices are all unique.

There are some important guiding principles that can assist when formulating an appropriate budget.

To begin, a prospective buyer should familiarise themselves with the type of campaign. Is it;

• an auction?
• a forthcoming auction?
• a private sale?
• a re-priced property after it has passed in at auction?
• an ‘expressions of interest’ campaign?
• an offmarket, quietly advertised sale?, or
• is it a property that has been on the market for a long period of time?

Quoting regimes in Victoria vary, depending on the type of sale. Private sales in many locations are quoted with the vendor’s wishful price. A negotiation may be appropriate, particularly if the market is not running hot. Auctions, however are typically underquoted.

But not always.

Take these two sales; both quoted $1,000,000 – $1,100,000 and scheduled for auction on the same Saturday as Melbourne entered into lockdown for the fourth time.

This property sold under the hammer on a zoom auction. With many passionate bidders registered, it was not surprising that the resultant price flew more than 25% over the top of the price quote.

However, this beautiful 3BR Victorian terrace within easy walk of Ascot Vale’s popular Union Road sold within the quoted price range; not even at the top.

Had a prospective buyer applied their 15% rule of thumb, they’d have missed the Art Deco unit by a country mile, and possibly have been devastated at the thought of a lack of preparedness to pay a figure that multiple other bidders were prepared to pay.

Likewise, if they’d applied it to the Ascot Vale terrace, they’d have potentially paid $215,000 more than they needed to.

Being familiar with our State’s quoting regime is really important. The Statement of Information is not all that helpful in a lot of cases, and a preparedness to question the data is critical.

Understanding the market eccentricities is vital too. Regional agencies and their agents often adopt a slightly different practise to their private sale processes. For example, many country agents will take the first acceptable offer to the vendor and have the contract executed immediately. Other buyers can often lament the process, wondering why the agent didn’t call them back, but we often hear, “Well the vendor was happy with the price and they did’t want to muck the buyer around, so we signed it off.”

The three most vital things that any prospective buyer should do when formulating their price limit is as follows:

1. Understand what type of campaign and price guide is on offer
2. Conduct thorough comparable sales analysis
3. Be clear with the agent about their rules. Don’t miss out on an opportunity due to a misunderstanding of the agent’s rules, or their preparedness to take a reasonable offer and have it signed immediately by the vendor.

And never, ever apply a ‘rule of thumb’ price when dealing with sales of this magnitude. It’s not a pair of shoes. It’s a property.