This is how to fix housing, if you think the problem is prices are too low
There’s a common property trap that my students never fall into.
(Or if they do, they don’t tell me, because they know I’d get angry.)
Underquoting was back in the news last week.
This is one of those perennial issues in the property market – the idea that agents deliberately underquote on a property that’s going to auction in order to hype up the auction day.
When there’s only a couple of registered bidders, the bidders feel like they have the upper hand. But when there’s dozens, the advantage goes to the seller – even if most of those bidders aren’t even close to the running.
So it’s a thing. I can’t tell you how common it is, but it’s definitely a thing.
And it’s an annoying thing. You might spend close to a grand on pest and building and conveyancing, only for the bidding to blow through your budget in the first five minutes.
The AFR is pointing the finger at agents:
On any given weekend in Australia, the hopes of thousands of home buyers are dashed when properties are sold well above the so-called “guide” price.
Take the “bright” two-bedroom apartment in inner-Sydney’s Surry Hills listed for $1.3 million before it sold for $1.56 million in March.
In nearby Darlington a flat that guided at $1.1 million sold for $1.536 million.
And in Melbourne, an “inviting” Vermont house was listed at $1.2 million and sold for $1.45 million last month.
The question is, did those properties attract emotional buyers ready to pay whatever it takes? Or was there underquoting, the illegal practice whereby agents – sometimes directed by the vendors – set an unrealistically low guide price to bring more would-be buyers into the net to stoke bidding at auction.
Brendan Dixon of Pure Finance says his clients frequently see properties sells for as much as 40 per cent above the guide price.
But my students don’t get caught out with this.
Because by the time they get to auction, they have a very clear idea of what a property is going to sell for.
There are very VERY few surprising sales at auction. There are very few instances where only one bidder shows up, and the property sells for 30% below the market median.
Sure. It does happen. Sometimes.
But you can’t build a portfolio strategy around consistently finding those incredible gems.
You’d have to waste hours and thousands of dollars attending dozens of auctions every weekend.
And you don’t need to.
Lasting property wealth is built on a consistent disciplined approach to numbers. Not on wild flukes.
And by the time you’re buying you should be what we call ‘a local area expert’.
You should know what suburb you’re interested in, based on suburb-by-suburb comparisons.
Then you should have a very clear idea of what particular price points in that particular suburb buy you.
And you should have a very clear idea of where the market is currently at. You should know what properties are selling for, and how properties are performing at auction.
All of this research is available to you.
At the end of that, you should be able to pick it a mile away when a property is quoted at 30% below the suburb median.
There shouldn’t be any surprises.
These are the disciplines that we train our students in. We take the luck out of it, and bring it back to numbers we can rely on.
We have tried and tested formulas.
Even real estate agents can’t mess with them.
DB