Discounting the pricing myth
Source: www.domain.com.au
Enzo Raimondo - September 24, 2011
There has been an increase in the use of the term ''discounting'' to describe the local property market.
Unfortunately, it is a term that fundamentally misunderstands the notion of value and price in residential real estate. This is the same mistake many commentators made when the market was very strong and sale prices were regularly exceeding vendors' and their real estate agents' expectations. It must be remembered that, in most cases, a price on a real estate advertisement is, under Victorian law, an estimate.
The estimate is often based on recent comparable sales and the real estate agent's judgment. It is not necessarily the price the vendor will sell for as that often fluctuates over the course of a sales campaign. It is not clear that commentators using the term ''discounting'' actually know what a vendor will accept. If they do not then the term only describes the difference between the estimates and not the real value. It is a truism in real estate that, no matter the state of the market, a property will only sell for the price a purchaser is willing to pay.
For a sale to be achieved, the vendor must accept what the market is willing to pay, and that number is an outcome of competition between buyers and other homes on the market. This is why the REIV tracks and compares sale prices. Participants in the market can get a real indication if prices are stable, dropping or rising.
This is a far more useful and clear indication of the state of the market than discounting.
ENZO RAIMONDO, chief executive REIV
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