Value is an abstract concept at the best of times, but when you toss in variables such as the need for a place to live, the fear of missing out, shifting tides in supply and demand, not to mention personal aesthetic standards, you’ll find yourself looking at something as transient as the property market.
What man or woman on this planet is equipped to estimate what a property’s ‘True’ worth is?
If people are willing to pay a certain number then that’s the new value right?
My article a few weeks back titled, ‘Buyer Feedback’ touched on this subject when we explored the tendency for Real Estate agents to deliberately blur the lines around value as a negotiation tactic. This is certainly another factor to toss into that bubbling pot of variables, but it would be unfair to attribute 100% of their questionable indications of price, to deception alone.
The truth is, no one out there has a crystal ball and even if you keep your finger glued to the pulse of your area, the best you can hope for is a rough estimate.
To exemplify this, I ran a little case study on a small sample group of units set to go to auction a month ago.
(to avoid throwing anyone under the bus, I haven't included the agent names or addresses of these relative properties, but hopefully the numbers alone will paint a clear picture by themselves)
Agent Estimation One:
“$700k to early $800K will buy it.”
Passed in at auction, relisted with an asking price of $999k.
Agent Estimation Two:
“If you’ve got funding in the mid six hundreds, you’ve got a good chance.”
Sold for $765K
Agent Estimation Three:
“Buyer feedback suggests that this sale is going to have a six in it.”
Sold for $695K
Etc, Etc, Etc
Of the fifteen properties I sampled, we received some variation of the above answers. Not exactly surgeon-like precision, is it?
Don’t throw up your hands and toss it all in just yet though! Remember, I ran this case study specifically on units rather than apartments.
For this exercise, I deliberately chose a market that I’m personally unfamiliar with so that I could replicate a first home buyer’s ignorance. As a result, I’m happy to acknowledge that there may be some workarounds that I’m missing here, however my main takeaway is this:
Not only is there less turnover in the unit market, the layouts are much less uniform than their apartment counterparts.
As a result, where an apartment buyer can draw from a large sample of comparable recent sales to decipher whether they are paying too much, a unit buyer has less data to draw from and more of those dreaded variables to consider when assessing the same problem.
Yes, I’m biased, but can you argue with the logic?
Of course, units have their own intangible merits. I’m just not so keen on relying on that crystal ball....