Pricing Games

We are hearing quite a bit of hype about extraordinarily high prices being achieved in several real estate markets.

The talk, however, needs to be taken with a grain of salt.

It is true that most markets around the country are rising, though not necessarily as rapidly or as dramatically as may be reported by some real estate agents and sections of the media. The media typically only report exceptional sales which present only a small proportion of sales results, yet provide the best copy.

Whilst there are genuine examples of multiple bidders taking auctions above any realistic pre auction expectation, much of the hype currently in the market appears to stem from the understated initial sale expectations and the subsequent marketing campaigns. Often vendors do not appreciate the true value of their properties and rely on estimates from agents. Some agents appear to be taking advantage of this situation by under estimating the sale price and encouraging a low reserve so people with a lower budget come and view the property and create more of a sense of competition. The old real estate adage regarding marketing price has always been “set it low and watch it go!” All we seem to hear is that properties are selling ‘well above reserve price’ when, in actual fact, the price paid in many cases is reflective of the true value all along.

Not only does this tactic lower the vendor’s expectations in the event that the agent can’t sell the property, if they do exceed the estimated price it makes the agent look good.

Needless to say, the agents are quick to report their properties selling “well above reserve price” and, of course, the media has been quick to latch on to these above expectation results!

Until next week,

Jock Bing