These comments are the writer’s own and do not necessarily reflect the current opinions and policies of the Real Estate Institute of Western Australia.
More often than not, vendors believe their property is worth more than a market consensus of a fair price. Opinion of market value for property is largely a subjective exercise; various agents will often have differing views of market price, friends and relatives have their own opinions as does the property owner.
Given the difficulty in accurately determining fair market price prior to the actual sale taking place, a definition of “value” arises from the ratio decidenti of a famous case;
“The market value of land at a certain date may be defined as the amount of money the land would bring in the open market by voluntary bargaining between vendor and purchaser, both willing to trade but neither of them so anxious to do so, that he would overlook any ordinary business consideration.” Spencer v Commonwealth of Australia  HCA70; (1907) 5 CLR 418.
It follows then that the value of your property is not actually determined until your buyer is found, negotiations finalised and the contract for sale completed. The combination of, amongst a myriad of things, market information, comparative property sales analysis, demand and supply levels, buyer activity and property presentation provide an insight into what fair market price might eventuate for a property but what does the anticipated or listing price have to do with the final market price?
In short, plenty. Statistics show that sellers that have an inflated opinion of the likely market price of their property lose money in the end. 48.5 per cent of local vendors are forced to discount their asking prices from their original expectations in order to sell and when they do the variance is a more significant 6.9 per cent. This means that, on average, a seller that needs to discount their original listing price of $1,000,000 ends up at a sale price of $931,000.
This phenomenon is partly due to buyer perception of “stale” listings; properties that sit on the market for above average periods of time. Such properties are often simply over-priced and buyers often discount them because they think “there must be something wrong with it if no one has bought it.”
Sellers are well advised to take in professional advice from a local REIWA agent and form a considered, unemotional opinion of value based on facts, evidence and reputable market data.
by Hayden Groves
REIA Deputy President