I'm often asked if there's a formula or percentange to apply to determine how much above or below the guide a property will sell for. The short answer is no; there's no formula. Every agent, and property will have a different price guide vs. sale price. However, there are clues that can help buyers in their pricing research. Here's how:
Understanding Price Guides
It's important to remember that there are underqouting laws in NSW that prohibt an agent from advertising a property below their estimated selling range. The estimated selling arange is usually a 10% range lsited in the sales agency agreement with the vendor. The agent cannot indicate a selling price lower than the botttom of the 10% estimated selling range.
However, what we see in practice, is that a price guide advertised on a property for sale is typically the price at which the agent wants to position the property within the market. In my experience, price guides are not always an accurate reflection of the sale price. Here are some of the factors sales agents will consider when crafting their advertised price guide:
Comparable Properties: There may be recent, very comparable properties, so agents might set a lower price guide to attract buyers with similar budgets, hoping to create competition.
Auction Strategies: Agents often pitch a lower price guide to attract as many buyers as possible, especially for auctions. On auction day, emotions run high, and buyers are more inclined to exceed their initial budget, leading to record results.
Unique Properties: Agents may advertise a lower guide because they are uncertain how to price a property if it has unique characteristics. If they quote too high, the agent risks losing quality buyers.
Using Guide vs. Sale Price to Aid in Research
Check the Agent’s Track Record: One of the first steps is to check the agent’s track record of price guide vs. sale price. Look at their previous sales and compare the initial price guides to the final sale prices. This will give buyers an idea of how the agent typically positions their properties in the market.
Don't discount a property becuase of the price guide alone. Buyers need to understand if that agent typically sells their properties at the price guide, within the reasonable 10% estimated selling range, or if they consistenly achieve results will in excess of the price guide.
Suburb Trends: Examine the suburb’s trends. Investigate the general ratio of price guides to sale prices within the suburb you’re interested in. Some suburbs may have a pattern where properties consistently sell above or below the guide, providing a valuable reference point.
Property Trends: Analyse which types of properties are selling at the guide, well above the guide, or below the guide. Find out the most competitive type of property e.g. 2-bedroom house vs. 4-bedroom house, house vs. apartments, main road vs. quiet street. Gathering this data will start to reveal which types of properties are competitive, selling above the guide, and which properties have more modest results.
Caution Against Predicting Sale Price Based on Guide Price
The Cycle of Low-Price Guides: Price guides can create a cycle of reinforcing low expectations. If an agent quotes exactly where they expect to sell, buyers may assume they need to add 15-20% to be competitive. Thus, realistic guides might deter genuine buyers who believe the property is out of their price range. It's crucial for buyers not to overlook a property because of the price guide alone. Always conduct thorough research on recent sales before ruling out a property.
Market Cycle Changes: Another reason to be cautious about using price guides to predict sale prices is market cycle changes. When properties consistently sell well above or well below the guide (more than usual), it indicates a market shift. Recognising these shifts can help buyers adjust their expectations and strategies accordingly.
Outliers: Properties handled by out-of-area sales agents or quirky properties with unique characteristics, can skew the data. Sales agents unfamiliar with the local market might set unrealistic guides, while unique properties might attract a niche market, making their sale prices harder to predict. Being aware of these outliers can help buyers better interpret price guides and make more informed decisions.
How to Overcome the Price Guide vs. Sale Price Guessing Game?
While price guides can provide clues about a sales agent's pricing methods and market positioning, they are not foolproof indicators of the final sale price. Each property and buying cycle is unique. By conducting thorough research on comparable sales, and considering the broader market context, buyers can better appraise estimated sale prices.