Is there a rule of thumb?

When it comes to predicting a likely selling price, is there a rule of thumb that should be applied to the agent’s quoted range?

This question comes up so often, but applying a general rule of thumb can spell trouble for buyers if they don’t do their homework.

The reality is that agents and agencies have different approaches to quoting. Whether it be private sale, expressions of interest, or auction campaigns, the quote regime also varies.

Buyers risk overpaying, under-valuing, and missing out altogether when they try to apply a rule of thumb.

We all know that a significant percentage of auction campaigns are underquoted. Sometimes the vendors throw their agent a curveball on the morning of the auction, stating a far higher reserve than initially anticipated. But other times, the underquoting is deliberate and obvious. Despite Consumer Affairs best efforts with policing auction underquoting and their implementation of The Statement of Information, the issue remains.

However, applying a ‘percentage’ figure as a rule of thumb could lead a buyer down the wrong path. I’ve heard buyers suggest that applying a 10% stretch above the top of the quoted range is their approach. Others have cited 15%, and have cited the sales that support their theory.

Some agents and vendors quote a range that incorporates the vendor’s reserve, and in fact, some agencies adopt this approach as a policy. A handful of agencies actually advertise the vendor’s reserve price.

And sometimes, just when we expect a particular agent or agency to have a sales result that outstrips their quoted range, they surprise us. I’ve seen plenty of situations where properties have sold within a buyer’s budget and the buyer is remorseful that they didn’t attend the auction.

So how do buyers recognise these properties?

The answer is; it’s very difficult do to so without conducting your own due diligence and enquiries. The first step required is to conduct comparable sales analysis. Whether the agent has accurately quoted, under-quoted, or over-quoted, a buyer who has done their homework will have a good grasp of value.

The second step is to find out a bit more about the campaign and the vendor’s motivation and settlement preferences. While an agent is less likely to expose their vendor’s reasons for selling, a highly motivated vendor will be identifiable. The agent may advise their vendor’s reserve, or they could hint that a short settlement, (and even an offer prior to auction) is preferable.

The next step is to understand more about your competition. As surprising as this could sound, simply asking the agent a few direct questions can equip buyers with a better understanding of their competing buyers. For example, establishing how many contracts have been requested, how many building inspections conducted, and how many live bidders the agent expects on the day can be a good guide.

Due diligence is integral, and this relates to affirming that the property hasn’t got any hidden issues or reasons why it could cause upset for the owner. From building inspections to contract reviews, council planning enquiries to neighbourhood checks, due diligence takes up the lion’s share of the pre-purchasing tasks.

Agents vary. Vendors vary. Properties vary too. Without understanding a significant issue, such as zoning, or rising damp, or high special levies, (to name a few), buyers could be miscalculating value and overpaying if they apply a rule of thumb. Sometimes properties sell at the bottom of the range, and occasionally below the range. This is usually for good reason, but its integral to recognise some of the causes of this before it’s too late.

There is no rule of thumb when it comes to pricing a property. Buying property requires careful analysis and due diligence.

It deserves it.

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