In a recent case in the Eastern Suburbs, a real estate agency launched a property on the market with a $5 million price tag. The house, a 1910-1920 California bungalow, seemed like a potential gem to some eager clients who were envisioning it as a “doer upper” or more like a “knockdown” in this premium postcode.
Upon closer inspection, the property revealed significant challenges. The house, a deceased estate, showed signs of neglect with leaky roofs, extensive Mold, and collapsed skylights. The excitement of the potential buyers was met with a reality check as the property’s condition was far from ideal.
The clients asked the crucial question, “What do you think of the value?” The response was straightforward, “I don’t think much of it; it is very overpriced. How has the agent justified the price?” The justifications provided by the agent seemed questionable which was fuelled by their enthusiasm.
Several factors contributed to the property’s overestimated value. Firstly, its location was in a premium postcode, Secondly, it was on the low side of the street and being in a flood zone raised concerns. Additionally, the soil was classified as acid sulphate, introducing complexities in construction and water table pollution. The property’s shape, a triangle with a 42-meter frontage, also presented challenges, particularly with current developments in the Woollahra Council.
The fundamental question arose: “Did you want it as an investment or to live in?” The clients’ response was, “Both, do it up and maybe live in it.” However, the realization struck that the block was ideally suited for a duplex development, requiring careful consideration from an architect or town planner. This would suit an investment strategy and wouldn’t over-capitalise the block. The rental or house product would be in high demand.
To live in the property soon would take a substantial renovation to make it liveable to their standard. Their basic costs to renovate and make the house presentable would have been close to $500K and still, the property would not have been to their ultimate standard. Discussions with Architectural and Planning professionals quickly confirmed this.
The agent’s quoted price seemed inflated, and research revealed that algorithms used for the area provided inaccurate comparisons. The agent lacked experience in similar properties, and the median sale prices in his portfolio were significantly lower, indicating a potential lack of expertise in assessing the property’s value accurately. The nature of the property did not have a priority interest for the Agent. The property was left unlocked, the agent did not attend the inspection. These things indicate not only a sub-par agent but one who has lost interest and intensity, perhaps due to a difficult vendor and unrealistic expectations.
Further investigation showed the property had been on the market for 91 days, it had been taken off the market over the Christmas break, and then relisted in the New Year a typical strategy to attract new buyers. It was a deceased estate, and the vendor, who was also the financier, showed a lack of urgency.
The median price for a 3 bedroom and 1 Bathroom house in the area ranged between $3.675 to $3.8 million (depending on the data provider), significantly lower than the agent’s $5 million valuation. The dilemma here is the median price range was also not aligned to property values. Corelogic data indicated a value of $5.1 Million with high confidence. Once again you can’t totally trust the data as many purchasers and agents do.
After an analysis, I determined a fair value of $3.745 million with a range of $3.625 million to $3.825 million. This would be fair value – but if we proceeded to negotiate the first offers would have been styled closer to the $3.5 Million mark. You can always go up in price.
In the fast-moving property market of the Eastern Suburbs, accurate assessment and fair value determination are crucial. Listening purely to the agent’s view is a risky ‘confirmation bias’ that will see you paying more for the property. The discrepancy between the agent’s valuation and the fair value indicated potential misjudgement, an unrealistic agent, or a vendor with high expectations.
Buying a property for the right price is critical for building value or allowing enough budget room for a good renovation or development. In conclusion, the clients were advised not to proceed with the purchase, even with the perceived savings of $1.5 million.
The property, with its challenges and misaligned location, did not align with their long-term goals. It was also a potential money pit not in the best location for where they ideally wished to be.
This case underscores the importance of a skilled buyer’s agent who can navigate the complexities of property valuation, negotiate effectively, and guide clients towards making informed decisions aligned with their objectives.
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