Everyone loves a bargain and no one wants to pay full price, so when it comes to property, how much should you offer, and is a discount always a good thing?
There are a number of websites that will give you details of the average discounting per property in the area, i.e. what the property actually sold for compared to the original asking price that was advertised. Whilst that might give you an indication of the discounts some people have got, it doesn’t help you unless you really understand the market and how some properties are priced. Consider the following factors before you stress about what sort of discount you receive.
The asking price could be set by the owners. Most people think their property is much better than everyone else’s. If they set an unrealistically high price at the start, they may have to come down a lot during the campaign to meet the buyer demand. You could then read into this that properties are being heavily discounted, and that you should try the same on other properties, but be cautions. Compare this to a vendor who has an identical house but is more realistic, selling it for the same price but doesn’t discount at all as it was priced right in the first place. Two identical houses with two identical sales prices, but one having been heavily discounted – it gives you two completely different stories. You need to do research so you can be sure the vendor has given a realistic price and isn’t going for gold.
The asking price could be set by an agent. The agent could be competing heavily for the business and has ‘bought the listing’, i.e. has suggested to the vendors that the property is worth much more than the other agents have quoted and the vendors have bought into the dream. Over the course of the campaign the agent conditions the vendors that buyer demand isn’t as high as expected and the price gets dropped. Compare this to an agent that has given his vendors a more realistic appraisal of their property and has priced it to sell.
What price range are you looking in? There isn’t just one property market but there are many, even in a single suburb. The level of discount you might be able to get very much depends on the price bracket you are looking at. Affordable properties around the median price of a suburb are often in short demand with lots of buyers looking for them, keeping prices stable. Whereas once you go well above the median price ($1 million and higher), often there’s not many buyers and so if a vendor is keen to sell, often they may have to lower their expectations.
What does the average property look like in that area? Just like median priced properties are most in demand, so are certain types of properties. In some areas it may be units, whilst in others it may be houses. It could be that parking is essential, or perhaps an outdoor area. If a vendor sells a property that doesn’t tick all the boxes they may need to discount it to get it sold.
Many people concentrate on getting a discount as it’s gives them bragging rights at their next dinner party, but I often think it’s a false economy. Most properties that tick all the boxes are always in demand no matter what the market looks like. And most properties that aren’t priced right or have something glaringly wrong with them (on a train line or main road, under a flight path, no parking, too large a block) always struggle to sell. You need to ask yourself: would you rather pay a fair price for a property that ticks all the boxes and is likely to always be in demand from other buyers and renters, or would you like to buy a lemon for a discount that’s always going to be hard to sell or rent in the future.
Consider the table above. Over a 10 year period a property that ticks all the boxes and grows at 8% will grow by $265k more than a property that doesn’t and only grows by 5%. While you may feel better on day one getting a 10% discount, it doesn’t take long for you to be behind.
We’re currently in a rising market over many parts of Australia, and discounting is getting less and less in the core areas around the median price. Many properties are doing the reverse and could be selling at $50-100k over reserve. Managing to buy these hot properties at fair market value in effect is the same as getting a 5-10% discount from the emotional price some others are paying.