With so many property agents underquoting or price baiting buyers, knowing the indicative selling price of a property is always a good call.
Property agents in certain regions are known to underquote by 20% to 30%, and it has become a major issue in the industry.
Real estate agents and vendors have often misled prospective buyers without indicative selling prices, making them believe that they stand a chance of acquiring properties.
If you are trying to buy a property in Australia, you must know all about how this relates to property prices.
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What is indicative selling price?
Indicative selling price represents true property value. Although a property can sell for more than the indicative selling price at auction, this price is the true house value estimate.
This price doesn’t just manifest from thin air. This price is usually decided by the real estate agent in charge of the property.
Several factors like property location, price comparisons with similar properties, etc., are considered before deciding the indicative selling price of a property.
A real estate agent is the best professional to decide this price because they’re experts in the field.
Why is indicative selling price important?
Did you know that real estate agents in Victoria often quoted lower prices for properties in the past?
They would do this to attract lots of potential buyers to the product. Eventually, they would sell the property for higher prices to richer bidders.
Buyers were told to attend auctions they had no business being at based on their budgets, and properties were not getting sold on time.
This trend was harming the economy and causing properties to remain on the market for too long.
Also, many sellers often list their properties at ridiculously high prices to see how the buyer market responds.
Underquoting
If owners are making so much money from listing their homes at ridiculous prices, it’s expected that realtors want in on that profit as well.
But buyers won’t initially want to bid for high prices, hence the need to underquote the properties.
The agents expect buyers to become so interested in the property that they’ll go to any length to outbid each other.
Meanwhile, this makes the market stagnant as property sales won’t move, hence the reason for the indicative selling price.
Today’s market
Residential real estate properties have been seeing a historical rise in price. Research shows that there has been a solid 21% rise in the prices between June to September of last year.
Any means to curb the prices and make properties more sellable would result in a better economy.
Underquoting puts potential buyers in the wrong position. Properties will sell faster and more efficiently when indicative selling prices are in place.
And this contributes to the flow of capital in the economy as fast property sales are a means of income for many property owners.
Hence with the successful sale of every real estate property, we are likely to improve the economy and allow it to function well.
Where is indicative selling price used?
Not all Australian states use the indicative selling price. The most notable location where this price is used is Victoria. Allegedly, Victoria is the only state in Australia to have this rule.
Note that indicative selling prices are not only for auctions. This is because it’s not only during auctions that potential buyers can be misled to think that they are capable of purchasing a property.
In Victoria, Australia, you should expect to have indicative selling prices during inspections and on any forms of advertisement.
When did the indicative selling price start?
These days, you’re likely to see this price when you go online to check out properties or physical advertisements.
But this trend started in 2017 since there was no guarantee that buyers were getting the actual house prices for the properties they were interested in.
So far, this has helped the Victorian real estate market become more profitable in the long run.
Since only Victoria uses the indicative selling price to solve the underquoting problem, other states use government policies to reduce the risk of properties getting priced below their value.
Indicative selling price vs house value estimate
An indicative selling price estimates how much a property is worth.
However, there are some slight nuances to this that make it different from a house value estimate.
Indicative selling prices are usually given by the real estate agent, who considers several things to develop a solid price.
The agent would consider
- the features of the property
- the selling price of properties in the area
- the location of the properties.
Another factor that makes the indicative selling price unique is a local agent.
The local agent understands the local market and conducts inspections of the properties at periodic intervals.
With this knowledge, the real estate agent comes up with a specific price range within 10% max.
On the other hand, the house value estimate is usually a wider range of prices and is usually less conclusive when compared to an indicative selling price.
However, sometimes, homeowners are desperate to sell their homes, and an indicative selling price will not cut it.
Reserve price vs indicative selling price
Source: wallstreetmojo
If the seller wants to compromise on the actual estimate of the property, the vendor would have discussed a reserve price with their real estate agent.
A reserve price is a minimum price for which a seller is willing to let go of their property, whether at an auction or a private sale.
However, unlike underquoting, you don’t often see prices going lower from here.
Reserve prices are different from indicative prices as they are not shared with potential buyers during auctions.
If a buyer bids on the reserve price, the agent would have to discuss with the seller on whether to lower the reserve price to get more bids or not.
The reserve price on a property may be similar to the indicative selling price or not, depending on what the agent chooses to do.
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