Residential property is a source of constant debate and discussion, it’s an endless conversation with many different narratives, but there’s one topic in particular that we all get excited about and that’s prices. For some this topic might even be seen as a sport. And for some even a highly charged ‘blood-sport’.
You hear people talking about real restate prices everywhere, both big cities and beyond because regional and country towns are not immune to this nagging topic. In cafes of course, on the train or bus, standing at the pedestrian crossing waiting for the green light, you hear conversations about property prices. The conversations are often focused on how high prices are, about how much this or that property sold for, apartments, houses, a block of land, any real estate sale generally excites much the same interest and comment.
We all need a place to live and so we’re naturally interested and with such big and competitive markets that’s not going to change. The conversation more often than not these days turns upon a big dose of bewilderment.
‘Really it sold for how much’ or ‘they paid how much, you’re joking!’ Auction results fuel this and when properties sell over the reserve, sometimes well over.
But not always as these two headlines show:
‘Sydney house sells for $1.175 million over reserve’ (SMH Sep 10, 2016) and not quite 12 months earlier this headline: ‘Sydney auction market limps into December with 57.5 per cent clearance rate’. (SMH Dec 5, 2015)
Was the September result over-priced? Were the sellers somehow duped in the previous December, the answer I earnestly suggest is neither, because the measure of price, of market value was set at the time by auction, in an open free market.
The buyers (investors or owner occupiers) were under no pressure to pay the price, like the under-bidders they could have walked away, they freely kept bidding. The sellers did not have to accept the final bids, but they did, the market set the price. I think this very simple fact is often de-valued, discounted or over looked, the prices were fair open market values. Prices are not being manipulated. There’s no secret cartel.
Auctions have been around a long time, they are a very public and open process, one that constantly tests the market and the prices are clearly the value on the day that buyers are willing and importantly able to pay. And sellers freely accept.The suggestion that somehow they have been forced to pay this or that prices is ridiculous.
Would anyone ever suggest some sort of control is being exerted over buyers, or sellers. Each party in thousands of transactions considers their own personal circumstances and a market price is set in full public gaze.
Some people might not like the end prices, but this is a robust test of value that not many other consumer goods face. Just what someone is willing to pay is determined by many and varied factors, some will be emotional factors, or family related and having the necessary funds or the ability to borrow the funds is key, an inescapable economic reality.
When the price is set by auction most transactions get wide exposure to a big pool of potential buyers. In todays modern real estate marketplace digital marketing greatly amplifiers the exposure of each auction.
On-line marketing allows potential buyers to search the market from any corner of the county or from anywhere in the world. This form of marketing exposes a property to big numbers of potential buyers, its even now possible to bid at an auction on-line and this further extends the pool of buyers and I suggest the resultant process could not be more market driven. This is a true test of value, no matter the end result.
Because auction results are so robust the prices set then flows onto the private treaty market and also influence the prices paid for new homes and new apartments, as such the price benchmark is tested and reliable, and as the headlines mentioned early show, results do move up and down. Naturally you’re not happy if you miss out on a particular property and sellers might feel considerably out of pocket if they do not reach their price expectations.
Residential property markets are complex and influenced by many factors and as such this will always result in varied degrees of competition and in high demand areas this competition will drive up prices. Just as free and open competition does in every other market, and there is no reason that any form of ‘price control’ or intervention should ever be seen as possible.
Residential prices are influenced by many factors and auctions are perhaps the most reliable and unambiguous test of current buyer sentiment. The industry and most people interested in the market closely watch these weekly auctions and they are now a central part of the market’s price mechanism.