What to offer? Advertised price vs selling price

Ever browsed Realestate.com, found a property you liked, checked the advertised price and thought—yeah, but what’s it really going to sell for?

Searching for property is like a dating app, hours of scrolling to find a couple you like only to realise there are a few other interested parties. Maybe you go on a couple of dates, and before you know it, the one you're interested in has been taken off the market. Apparently, someone else was able to offer more than you.

Property is similar, when it's listed, there are two prices at play:

The advertised price
The actual price

1. The Advertised price

The advertised price may be within the amount you want to pay, but it's what the seller is willing to accept that's important.

The advertised price is nothing more than a signal to the market. The market will provide feedback in the form of attendance at an open home.

Lots of people at an open is a positive response to the signal, and a low turnout is a negative one. It's like no one checking your profile on a dating app, your going to change you're profile to attract someone.

Did you know that when an offer is rejected, the price range has to change to be no less than the amount rejected?

2. The actual price

If you can read the signals of the market, you will better understand what the actual price may be. Just because the advertised price is $680,000 - $720,000 doesn't mean that's an amount it will sell for... but sometimes it does.

So, other than as much as possible, how do you know what the seller actually wants? You don't! The agent doesn't even know if they got the price right until they get feedback from the market (more on that below).

Here's a few ways to narrow down what the end price may be.

Attend the first few open homes (go on dates)
Is it an auction or private sale
What's important to the seller (ask questions)

As part of your due diligence, when searching for properties to buy, search for sold properties using the same parameters.

Find properties that are similar in location, block size, bedrooms, bathrooms, age etc to the ones you're interested in.

If the advertised price seems low compared with what you can find, it's possible the range doesn't reflect what the vendor actually wants. Be prepared for it to go for more.

If the price seems high, don't ignore it, it may turn out to be scenario 3 below.

Open Homes

How do you know if the price range is reasonable, high or possibly under quoted?

The first few open homes will tell you a lot.

If there are 8-15 buyers, the property is well priced and expect competition.
15+, the property may be quoted low, so prepare for lot of competition
0-5, there is little interest at that price, giving you room to negotiate

With a $680,000 - $720,000 price range, to have the best chance of buying the property in scenario 1, have a budget up to $800,000.

In scenario 2, due to the high interest, be prepared for $800,000+. It's also possible the price range gets increased before the auction.

In scenario 3, you may have the luxury of starting at the low end of the range. Don't expect the seller to jump at your offer. It may take some time for the seller to realise their price is unrealistic and you're their best option. Negotiating is like dating. You may like the person, they're nice and have good prospects, you can see yourself living with them, they also like you, but are not yet sure, so it may take a couple more dates before you can get a commitment.

Private Sale or Auction

The agents job is to find the balance between attracting as many buyers as possible and not under quote. In a private sale the price range usually reflects what the seller will accept.

So reference the three scenarios above, complete your due diligence search and place your offer.

The hard part with a private sale is not knowing what your competition is thinking. In an auction it's out there for all to see.

As there's no limit of bids at auction, you may find the range isn't exactly in line with what the vendor will sell for. The range is designed to attract as many people as possible.

Expect auctions to go for at least 10% over the top of the range. That said, if scenario 3 (above) occurs and there's little interest in the property, you may pick it up within the range, or even before auction.

If you're the highest bidder and the agent throws in a vendor bid, it's not an actual bid to buy the property. It's an indication that you're not at a price they're ready to accept.

The vendor bid is to get you to a price where the property's "on the market". This means you're at, or above the vendors reserve and the property is going to sell.

In a scenario where a property is 'passed in' and you're the highest bidder, you get first rights to negotiate. This also means the property is no longer under auction conditions. You can negotiate price with conditions such as finance, building and pest inspections.

The seller

Unlike an auction, a private sale is more than price, conditions matter.

Understanding what the vendor wants (other than price) will help you better position your offer.

Do they want a long or short settlement?
Do they need any flexibility while buying their next home?
Does a lease back option work for both of you?
Do they want the deposit released early?
Is a finance clause required?

There are many things the vendor will consider other than price. The better you align with their needs, the stronger your offer.

Think of it this way:

Buyer 1: $690,000, no conditions, 35 day settlement
you: $700,000, no conditions, 90 day settlement

If the vendor needs a long settlement so they can buy their next home, Which offer do you think they'll accept?

There's a lot to think about, but when done right, it puts you in a much stronger position than your competition.

But remember, If you’re not thinking this way, your competition is.

Sometimes you can get lucky and pick up an absolute bargain, like the friend who ended up with the person that seemed way out of their league, maybe they're just really good at negotiating and understanding what the other person wants.