Median Price - Is median price still a good indicator of value?
You would have heard property prices in Melbourne have gone crazy. Valuations have gone berserk, and sold prices are on the well above the wrong side of median price.
In times like this, is median price still a good indicator of house prices and in particular, valuation?
In short, median prices are never a good indicator of valuation. Median price is simply an average of ALL sold prices in the suburb. And, with most median prices available in the free public domain, "ALL" includes all types of houses. 3 bedroom units, 5 bedroom houses, studio apartments, 3 bedroom apartments, etc. All are bundled into that median price. Now, we all know a house is normally more expensive than a townhouse (unit), and that, in turn, is more expensive than an apartment. Free public domain median prices provide no such breakdowns of the 'median price'.
In addition to that, the median price also does not consider any unique selling point of the property. There could be a gold plated toilet in the house, or that the living room might have been fire damaged, in another property. These 2 properties would have very different valuations, even if they have identical designs, and are right next to each other.
What is the Significance of Valuation?
Does valuation mean you can get the property at that price? Unfortunately, no.
When a bank or lender agree to give you a mortgage, they put a value on the property. The valuation forms the basis of this value, and their internal lending policies decides what portion of this value should they lend you. Valuation is also used by the local council to determine how much council rates you should be paying.
Valuations also does not mean you can hope to get the property at that price.
How much a property will sell at, will depend on a few other factors. Primarily, how much the vendor thinks his/her property is worth, and the other buyers' interests in the property, and how much they are willing to pay.
All you need is one very ill-informed buyer who is willing to pay too much for the property, to create the impression that the property is worth more than what it is worth.
What about the "Price Guide" or "Statement of Information"?
Officially, according consumer affairs and fair trading laws in Victoria, the price guide should be a fair estimate of the property, and it should be supported by recent sales of similar properties in the neighbourhood. This is what we called "comparable sales". However, this "similar properties" is very much opened to interpretation, and the selling agent's discretion. This is where the agent has the 'flexibility' to arbitrarily influence any reasonable numbers.
What does this mean? We know buyers are attracted by low price. And higher buyer interests is good for their marketing. When it comes to auction, the more buyer interest there is, the easier it is for the auctioneer to drum up 'demand' and help him pitch bidders against each other.
So, we should always do our own diligence. A guide is just a guide. You will realise most of the time, it does not mean the vendor has that price range in mind, and It is also not an indication of how much the property will sell for.
How do you know what a property will sell for?
I wish there is a quick way to determine that. It would make our lives as buyers advocates a lot easier if there is. But, unfortunately, there isn't. There aren't any formulas, but a well-informed, experienced, buyers advocate with good local knowledge of the area and market, would be able to combinate factors, such as buyer interest in the property, in the area, growth potential, what people are willing to pay for, what the property is really worth, etc, into consideration, and provide a price estimate of within +/- 10%.
That estimate, sadly will be invalidated by that 1 very uneducated buyer who had been pressured into offering insane prices.
It is no wonder that many DIY, uneducated or inexperienced buyers ends up frustrated. Their frustration is understandable. Buying unprepared and without expert guidance is not going to help with their confidence. After a few months of unsuccessful house hunting, they gave up.
If you have been missing out on properties, you might want to consider seeking assistance from buyer's advocates who are experts in the area.
If you are looking for properties in Melbourne and regional Victoria, do feel free to get in touch. Let us explore if our services can help with your property search.
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