'Discounting' not an accurate estimate of the market

There has been an increase in the use of the term “discounting” to describe the local property market. Unfortunately, it is a term that fundamentally misunderstands the notion of value and price in residential real estate.

This is the same mistake many commentators made when the market was very strong and sale prices were regularly exceeding vendors’ and their real estate agents’ expectations.

It must be remembered that in most cases that a price on a real estate advertisement is under Victorian law an estimation. The estimate is often based on recent comparable sales and the real estate agent’s judgment. It is not necessarily the price the vendor will sell for, as that often fluctuates over the course of a sales campaign.

It is not clear that commentators using the term “discounting” actually know what a vendor will accept. If they do not then the term only describes the difference between the estimates and not the real value.

It is a truism in real estate that, no matter the state of the market, a property will only sell for the price a purchaser is willing to pay. This is very different from most retail goods – for instance, groceries – which are only available for the stated price.

For a sale to be achieved, the vendor must decide to accept what the market is willing to pay, and that number is an outcome of competition between buyers and other homes on the market.

This is why, as a service to the market, the REIV tracks and compares sale prices. By comparing actual sales, participants in the market can get a real indication if prices, overall or even in one suburb, are stable, dropping or rising. This is a far more useful and clear indication of the state of the market than discounting.