An asking price on a house is a wonderful sight for a weary buyer – it takes nearly all the guesswork and confusion out of house-hunting. Why, then, do so few property listings have a price tag?
All over New Zealand, houses that carry a price sell for close to that figure. In Auckland, Hamilton and Wellington, the average sale price is under the asking price by within 6%. In Tauranga and Dunedin, it’s a little lower; and in Christchurch, you can almost just transfer the asking price straight to the seller’s bank account.
This table, from CoreLogic, shows the average discount of the sale price from listing price across New Zealand for the second quarter of this year:
|Territorial Authority||Q2 2014|
|Auckland - North Shore||3.8%|
|Auckland - Waitakere||3.1%|
|Auckland - City||4.6%|
|Auckland - Manukau||4.8%|
Some houses do out-perform their asking price: 17.7% of houses nationwide, and 24% in Auckland, sold for over their initial asking price in June this year, accordingto CoreLogic. But we can assume from the table above that they tend to sell for close to the asking price, otherwise they would drag the average difference figure much closer to, or even above, the zero point.
Putting a ceiling on the value
The accuracy of listing prices is a double-edged sword: they firmly tie a price to a property. If you price your house, you’re effectively creating a ceiling value of just over that number. Great for the buyer; not so great if you’re selling a crowd-pleasing property.
In a sellers’ market, especially a heated one like Auckland or Christchurch, excitable buyers become competitive, stretch their budgets, and pay more than anyone (themselves included) expects. A house in Auckland’s Greenlane recently sold for $1.366 million when the agent was expecting to get $1.2 million –13.8% and $166,000 above the anticipated price tag.
Real estate agents are working to get the best price for the vendor; they don’t want to underprice a house that could go for well over what they expect, and high price tags can be off-putting, so an auction or tender makes more sense. With keen buyers and a shortage of listings, why cap your potential sale price with a number?
Enticing the buyers
On the flipside, in a market with fewer buyers, price tags work well to entice house-hunters. If your market also has a small price range, an agent is not running the risk of underpricing a property by a huge margin. When both these factors combine, as they do in Dunedin, you get a market where asking prices are the norm. Around 70% of listings in Dunedin have an asking price, estimates Wayne Graham, managing director of L J Hooker Dunedin and Mosgiel.
The bulk of property sales in Dunedin are within the $150,000 to $350,000 range, and most houses that come onto the market can be accurately priced to within 10% of their value, says Graham. His agencies’ listings tend to be around half auctions, half priced. For priced properties, the agents estimate a value range,“and then list at the higher end of that range and work downward,” which goes a long way to explaining Dunedin’s higher asking-price discount compared to other cities.
The price of last resort
It’s also difficult to price a house in a volatile market. So why does Christchurch, with all its ups and downs, have the most accurate selling prices? It’s because most houses in Christchurch that are listed with a price have already been passed in at auction, says Peter Warren, franchise owner of Mike Pero, Christchurch South. Going through the auction process gives both the agent and the vendor a clear indicator of what the market thinks the house is worth.
Once a house reaches a sales deadline and remains unsold, Warren says the best strategy is to put it back on the market straight away with a realistic price.This strategy is common across New Zealand, and results in market-tested pricing that helps explain some of the accuracy of asking prices.
The right number
For some properties, it’s easy to come up with a price, so they are often listed with one. Apartments are the best example; they can often be priced to within a $5,000 margin using sales in the same building and square metre rates.
Unusual houses are tricky to value because there are few comparable properties, so they’re rarely priced for sale. This can include opulent multi-million-dollar properties, houses with stunning views, outstanding architcture or far-flung locations. These houses are mostly auctioned or sold by tender. Occasionally a property will be marketed to just a handful of buyers, and that may require putting a price on the house, says Nicola Kelland, managing director of Auckland-only Kellands Real Estate.
“We tend to price properties that we don’t think there will be a huge demand for,” she says. “Although at the top of the market we will often tender. There’s a lot of money at stake in the price difference between $5 million and $6 million.”
What about houses listed without a price?
Selling a house without a price tag is a technique that is designed to maximise what a buyer will pay. As a result, agents usually won’t give you any clues as to what the vendor really wants or expects to sell the house for (although it’s always worth asking).
Online real estate sites let agents enter a wide price range for any property, and Kelland says many agents use unrealistically low bottom-end pricing so the house shows up in more searches. In other words, just because a house appears in your search for properties under $650,000, it doesn’t mean that’s what the agent thinks it will actually sell for. The agent and the seller might really have a figure of $750,000 or more in mind, but they want to get you along to the open home so you’ll fall in love and outbid your own budget.
“Estimating value is difficult and frustrating for the average person,” says Kelland. “In a buyers’ market we’d probably be more likely to use pricing, but our job is to get the best price for the vendor.”
The good news for buyers is that asking prices are very accurate. The bad news is that without an asking price, there’s no way to be certain about a house’s value. The only effective method for estimating an unpriced property’s value is to spend time researching your suburb – attending open homes and auctions, collecting sales data, and becoming embedded in the local market.