Why did THIS one sell for a bargain?

It’s human nature to justify the way we want an outcome to roll out. When buyers prepare for their property search, many look at other past sales in the area in an effort to establish an appropriate ‘spend range’ or budget limit. 

  Most don’t look at the strong sales results though.

And many look at the low results; sometimes the anomaly results. It’s very easy for buyers to have regret that they didn’t attend a particular auction when they see a published low result, but how often to they ask themselves whether the result was just an anomaly or a low result for a reason?

Sometimes we have to help them dissect the results they have focused on in an effort to breathe some reality into their search and save them from feeling despondant.

When the result is an anomaly (ie.incongruity or inconsistency according to the dictionary), we will never know how strong the winning bidder actually was. Did they bid to their limit, or did they have another 5% in their budget? Short of asking them, we’ll never know.

Aside from contemplating the budget of the winning bidder, we remind clients that holding out for that one-in-a-thousand bargain is not sensible. Trying to find a needle in a haystack is not applying rationale. There will always be that rare, outlying result but if we gear up for every feint-chance auction in the hope of that ‘one in a thousand’ chance of securing an ‘above-budget’ property, we’ll probably see them chaulk up $50,000 in building inspections. 

Deciding whether or not to bid is based on science and weighing up the odds.

The chance of success must be weighed up, otherwise three risks are taken:

• money, emotional energy and effort is wasted
• other, potentially more viable opportunities can be missed while chasing the property
• lost opportunity cost; in a moving market the buyer’s own budget could become a de-valued currency.

It is essential to focus on a broad range of comparable and recently sold properties to gain a better idea of where the shortlisted property value is likely to sit. This includes high anomaly sales results too. I recall one particular property in Armadale that was an outlier result in my comparable sales research and it appeared to be the most similar in size and style to the subject property. A quick phone call to the selling agent revealed that indeed, the property sales result had shocked everybody. A parent with dreams of having their daughter and grandchildren living next door had fought hard against an overseas buyer who also loved the house. The sales result spun some 28% above reserve. If I had considered that result as a price guide I would not have bothered attending the auction for my client.

We went on to win the property at auction.

Likewise recently I had to coach a lovely couple on their Port Melbourne acquisition strategy. They had circled in on a recent sales result in the nearby vicinity that seemed ridiculously too low.

They had convinced themselves that they’d missed the opportunity of a lifetime.

It wasn’t until I explored the result and shed light on the zoning of the property. This particular house was commercially zoned and in a location that could arguably be recognised by a lender as a commercial opportunity. Had they bid on the property their finance approval could have precluded them from being able to settle and they may have forfeited their deposit.

What would ordinarily have sold for around $1,200,000 -$1,300,000 sold for $1,030,000. Competing buyer inability to finance on commercial loan terms restricted the buyer audience and meant that the property sold for what appeared to be a bargain.

This week I had to share my insights on the suburb of Maidstone in Melbourne’s inner west. Maidstone is multi-faceted in terms of its pockets and street character. It could be argued that the pocket abounding West Footscray (south of Ballarat Rd) is superior in nature, and certain streets have particularly sought-after housing character. Our interstate buyer’s best of intentions to canvas other recent sales had him questioning a few sales results in the northern pockets and comparing to our recommended auction budget. 

Most lower sales results are lower for a reason.

Several years ago a distressed buyer who had opted not to pursue a villa unit in Moonee Ponds wrote to me one Sunday morning after an alarming discovery in the auction results. The property I’d told him his $460,000 could not afford had sold for $407,000 and he was filled with remorse. Happily I’d become aware at the last hour when contracts rolled in on the Thursday night that the property was not as it seemed. Rather than being strata titled, it was Company Share. Lenders have a very different appetite for this type of title and mortgage insurers won’t accept them. The buyer pool went from healthy numbers to just one cash buyer. No wonder the property sold so cheaply.

Art Deco apartments can sometimes break hearts.

Making sure the past sales sample is more than just one hand-picked data point is really important. Having a realistic search, a fair and well-founded expectation of the budget required and maintaining a focus on the thick of the bell curve (as opposed to the outliers at either end) will ensure that the search is a success. 

A long journey in the quest for a bargain can cost disappointment and lost opportunity at best, and the risk of being shut out of the market with tightening lending policy at worst.

For the small number of low, genuine anomaly sales, the number of ‘normal’ sales results far outweigh them.

Property buying is an odds-game and requires a pragmatic approach in this tough Seller’s market.