What’s the price?

There was some press last year regarding properties and price guides — or rather, the lack of price guides. Look on the internet or in the papers and some properties will have either a set asking price (i.e., $730,000) or a price guide/range (i.e., ‘Over $700,000’) and the rest will have POA (price on application), in which case buyers have to call the agent to get an idea of expectations.

I strongly advocate price guides because they’re a great service to buyers and they make the marketing process more transparent. In my experience, you’ll get more buyers to your open inspections if you advertise with a price guide. It’s also a good way of ensuring the buyers who turn up are capable of paying what you’re asking for.

So why do some agents use POA? Let me clue you into the challenges.

The cardinal rule of pricing is that the selling price for your home is determined by the buyers. If you got six property valuers in tomorrow, they would most likely come back with a fairly tight range, say $680,000 to $720,000. They use a formula based on comparable historical sales, the size of the land and your home, the condition of your home, the improvements you’ve made and so on.

However, if you got six buyers to look at your home, they might price it from $650,000 to $750,000. It comes down to perceived value as well as their emotional reaction to your home. Buyers will have a range of prices they are willing to pay for your home based on their own individual assessment of the market, your property and its presentation, market demand and how much they like it and want to own it.

Setting an asking price comes down to making comparisons — it’s more of an art than a science. No two homes are identical so you must compare your home to similar homes and adjust for any differences.

Ask your agent to talk you through the comparable sales they have relied upon to come up with your estimated selling price and hence your publicly advertised or verbalised price guide. If they show you several similar homes on similar sized blocks that have sold for, say, between $700,000 to $750,000 in the past two months, that’s a good indication of what you should expect for your property.

So why use POA? Well, it’s definitely useful for properties that are so unique they have no comparables whatsoever. Perhaps it’s a grand heritage listed estate on 1500sqm in a suburb full of terraces on 300sqm lots. In this case the agent might want to seek buyer feedback at the first couple of opens before they start advertising or verbalising a formal price guide. You might also see more instances of POA in hot fast-running markets where property values are changing literally month to month.

I also suspect that POA is being used more by the cautious and perhaps less confident agents who are letting the fear of being fined for underquoting influence their decision to use price guides. Buyers understandably detest the practice of underquoting and agents definitely want to avoid even the perception of doing this.

It’s a tough issue. Underquoting is a despicable practice and the penalties should be tough to help stamp it out. However, when an agent secures an amazing price, more times than not it actually doesn’t mean they’ve underquoted, it just means they’ve done a great job in maximising buyer interest through smart marketing and buyer servicing, which has then facilitated market forces (i.e., competition between buyers) to push the price beyond the average achieved for similar homes.

Say all the comparables for your home indicate it should sell for between $700,000 and $750,000 and you go with a guide of ‘Over $720,000’. A lax agent will execute a cheap marketing campaign that reaches maybe 50 per cent of your potential buyers, they’ll conduct a few opens, they won’t bother to follow up with those buyers and on auction day you’ll probably get a price within that average range.

Conversely, a great agent will ensure your property is presented beautifully, they’ll execute a broad range marketing campaign to reach as close to 100 per cent of your potential buyers as possible, they’ll follow up every buyer who inspects your home and they’ll nurture those buyers through to auction day where strong competition will result in the best possible price. And that’s why a property correctly priced at ‘Over $720,000’ based on comparable sales might end up selling for $800,000 if the agent has done a great job and the market is willing to pay $800,000.

So while I do empathise with buyers’ frustration at not having price guides on all properties, I recommend that you not dismiss POA properties. We have a shortage of homes available for sale in Australia so don’t risk missing out on a great property just because it’s POA. Pick up the phone and call the agent — there’s usually a valid reason why a price guide isn’t being used and the agent will happily explain this to you.