A declining property market is not something that many Australians can recall.
Median house prices in Melbourne have grown by 350% to 400% in the past 30 years. Apart from during the GFC, a 6% correction between 2017 and 2019 (Open Agent) and the correction that we are now experiencing, prices have shown steady growth throughout this time.
So, what advice can be given to vendors needing to sell in a declining market?
The recent support we provided to one of our clients who needed to sell an estate property will help to answer this question.
1. Have a realistic expectation of your property’s value
It’s important to understand the current value of the property. Many real estate agents give an over-optimisitc property appraisal to win your business, only to lower the estimate closer to the auction. Looking at recent comparable property prices can help you assess what your property is currently worth. You can also obtain an independent valuation from a licensed valuer which can provide security and confidence.
Our client’s property was a two-bedroom unit purchased four years ago for just over one million dollars. Since then, the market for comparable properties had declined by 4.8% suggesting that the property was now worth approximately $965,000. Our client accepted that a capital loss may be the result of selling in the current market, but wanted the property sold rather than wait for a better time to sell.
The issue is then, if the market is unlikely to pay a higher price for the property, how do we limit the loss?
This is where the other fundamentals of selling become especially important:
2. Select the right agent
The agent we recommended to our client was from a prominent local real estate agency and was a specialist in selling units & apartments. The agency’s extensive buyer database, and the individual agent’s proven experience in negotiating the sale of units and apartments, could only be advantageous.
3. Focus on presentation of the property
The main presentation issue with this property was water damage to a section of carpet and architrave caused by leaking from a balcony. We had the Owners Corporation rectify the cause of the leak. The carpet was replaced and the architrave was repaired, leaving no trace of the issue. The unit was then professionally styled with small modern furniture which made the unit appear larger and welcoming.
4. Choose the best-selling method
Rather than selling by auction, the property was marketed for sale by Expressions of Interest. This gave the agent the ability to negotiate directly with buyers over time, rather than hope for competitive bidding at an auction. In the current market, there are fewer bidders and the auction clearance rates are low. We believed this was the right decision.
5. Price the property correctly
The property was priced by the agent with a 10% range. The bottom of the range was to (hopefully) attract interest, and the top of the range was to encourage higher offers to secure the property.
Initial expressions of interest were below the bottom of the range. However we held firm with those numbers until one buyer, for whom the property ticked all their boxes, stood out from the rest. Further negotiations had them increase their offer to a price well within the advertised range and only marginally below the original purchase price. The offer was gladly accepted by the executor and the beneficiaries.
A declining property market is typically characterised by an increase in ‘average days on market’, – Melbourne units are now 47 days up from 30 days in 2022 – and falling auction clearance rates – now 56% down from 74% same week last year. The number of Melbourne auctions are also well down from over 1,100 last year to just 550 last week. We expect this trend to continue.
The takeaways for selling in a declining property market:
Getting a realistic idea of the market price for the property at the outset saves time and expensive marketing.
Having the property presented to remove any buyer concerns and make them feel ‘at home’ helps with final negotiations.
Selecting the right real estate agent & selling method contributes to a timely and effective sale.
At Tower Property Advisory, our role is to help vendors make informed decisions, reduce the stress of selling and pursue the best possible results in the prevailing market.
If you need to sell a property in a declining market, book your free consultation today. Or call 0402 890 830 to speak with me, Phil Hoopmann, Senior Property Manager, or 0418 517 653 to speak with Robert Allanadale, Director.
