Median Price - Is median price a good indicator of house prices?
You would have heard property prices in Melbourne have gone crazy. Valuations have gone berserk, and houses prices are 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?
The Truth with Property Median Price
Median prices can be misleading when assessing a property's value. A median price represents an average of all sold prices within a suburb—this means all types of properties (houses, townhouses, units, apartments) are lumped into one figure. This one-size-fits-all figure lacks critical breakdowns, failing to account for the fact that, for instance, houses are typically more expensive than townhouses, which are generally pricier than apartments.
Additionally, median prices overlook each property’s unique features and conditions. A home with a luxury kitchen or one with fire damage could drastically differ in price, yet both impact the median without context. For property buyers and investors, focusing on detailed market research and property-specific data is key to making an informed decision—median prices alone just won’t cut it.
Understanding the Importance of Property Valuation
A property's valuation is a critical number, but it doesn’t necessarily mean you can buy the property for that amount. When banks or lenders provide a mortgage, they determine a valuation as a basis for how much they’re willing to lend, using this value to inform the loan portion they’ll approve based on their internal policies. Local councils also rely on valuations to set council rates.
However, valuations don’t equate to a property’s market price. The final sale price is influenced by factors like the vendor’s expectations, other buyers’ interest, and their willingness to pay. In some cases, even one misinformed buyer offering above-market price can set unrealistic standards, making the property appear more valuable than it might be. Understanding these nuances is essential for making well-informed property investment decisions.
What is 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 agents have been know to use their 'flexibility' to select an arbitrary values to influence and attract unsuspecting.
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.
Thus, agents will be more than happy to create the illusion of a "cheap and good property", to attract more buyers to a property. We should always do our own diligence, and not rely on the price 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. We often see sales agents artificially setting the price at $x, when the vendor actually wants 20% more.
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 independent 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 combine 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 a 10% accuracy.
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.
Buyers without the expert guidance usually give us buying after a few months of unsuccessful house hunting.
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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