How to separate facts from fluff about Melbourne’s property market

Mal JamesAugust 21, 20120 min read

We live in an information age.

In our fast-paced environment, how can we discriminate the good from the bad in the information-saturated Melbourne property market right now?

At James Buyer Advocates, when we produce a full value rating, we look at hundreds of pieces of information.

We split them into three categories.

Facts – such as a sale price

Opinions – such as the values placed on a home by the highest other bidder, the seller and your own pre-sale opinions

Fluff – uniformed or unsubstantiated advice or guides

Take one of the many property websites popping up, such as onthehouse.com.au, which last week said 45 Middle Crescent Brighton could sell for $1,967,900 to $2,089,900. The house sold for just under $3 million, so you’d be pretty disappointed as a buyer if you’d been relying on the site’s “guesstimate”. That wasn’t opinion, that was fluff. It was free fluff, but it was useless fluff. This home actually sold within the selling agents’ quote range.

When everything is blended as one, it is important to discriminate good from bad when making decisions.

In this faster world, facts, opinions and fluff can all blend into one, and they can all become information.

As a buyer, unless you live in a cocoon, the opinions that drive your decisions either good or bad are going to be affected by how you interpret the information you receive – facts, opinions and fluff.

We find that good decisions, and therefore good outcomes, are generally based on facts and informed opinion.

Bad decisions, which more often than not lead to bad outcomes, are made with the help of uninformed opinion and fluff.

Where it becomes tricky for many buyers is determining if a piece of information is a fact, an opinion or fluff.

Fact or fluff

As the world gets murkier – that is editorial versus advertorial – it becomes harder for buyers.

The Real Estate Institute of Victoria (of which we are a longer-term member) often gives the market facts and really well-informed opinion – but at other times it can give the market fluff.

Take, for instance, the last median results and the opinion on the market.  The REIV chief executive Enzo Raimondo (he’s OK, and we don’t get it right every day either) supported his latest market opinion stating that Balwyn had strongly improved in prices in the last 12 months and was nearly back at its peak in 2010.

The REIV claimed, as a fact, that the median quarter price in Balwyn has gone up by 26% in three months and that Balwyn tops the list at 20% for June median price quarter improvement in the last year.

“Wow,” you say, “That’s a fact – that’s useful and relevant information when buying in Balwyn”.

But is it a fact or is it just some fluff to fill some space?

Let’s look a little deeper into the star-performing suburb of Balwyn. Let’s check out the “facts”.

The REIV’s June quarter median was based on 43 sales – fully 25% had no sale price recorded next to them. Not just undisclosed. But blank. Agents voluntarily provide this information. So the REIV had to ignore a full quarter of the June quarter’s transactions to come up with its median house price.

Why so many unrecorded prices? Well, in a weaker market like we’ve got now, agents and sellers become reluctant to record all sale prices for reasons of ego or business.

 


 

According to the REIV, the median price for Balwyn this June quarter was $1,540,000. Where did the organisation get that price from? A median price is normally the middle sale – with half the sales below that price and half above it.  But there was actually no sale in Balwyn at that price.

The way the REIV came up with that price was to take a statistical average of the two middle sales. One of those sales was $1.37 million (40 Jurang Street with Jellis Craig) and the other was $1.71 million (6 Eyre Street with Kay and Burton). That’s a huuuuge gap, a difference of nearly 25%  – so some may say it’s a bit of a stretch to say Balwyn had a $1,540,000 median price based on those two sales.

What if one more of those mysterious Balwyn unrecorded price results had been recorded, and it was below $1,370,000? That would have made the “median” price in Balwyn to $1,370,000, and the median price “growth” would have dropped from 20% to 7%.

If another four or five of those undisclosed price sales had been in the lower half of the pool of results the median price results may well have been lower than the previous year’s median in Balwyn. In other words, what we may well have had is not an increase but a fall in price June quarter 2011 to June quarter 2012.

What if we compare the actual median price sale from the previous financial year with the actual median price sale this financial year just gone, using the REIV’s own data?

According to the REIV, there was a total of 132 sales (16 unrecorded) in Balwyn in 2010-2011, and the overall median sale was 117 Winmalee Road (Christopher Russell), which sold for $1.45 million.  In 2011-12 there was a total of 152 sales (29 unrecorded), and the median price was $1,302,500 for Grosvenor Street (Jellis Craig).

Comparing those two figures it shows a drop in values in Balwyn of around 10% in price between 2010-11 and 2011-12 ending this last June quarter.

That’s a big difference from that 20% increase presented as a fact by the REIV to support strong growth in Balwyn. And that figure of -10% tallies in a lot more closely with what we’ve been seeing at the coalface.

So is it a fact there was big median price increase in Balwyn or is it fluff?

If you are buying a home in Balwyn are you using the -10% or the +20% when assessing historical comparables to formulate your opinion on value and therefore make your “good” buying decision?

And, not to put too fine a point on any of the information you are looking at:

Is it fact?

Is it opinion (informed or uniformed)? or

Is it simply fluff?

Footnote: This article is not about the REIV (we’re members, we like and support the REIV). This article is not about Balwyn per se, because in Toorak 30% of house sales in the June quarter had no figure next to them and in Brighton there were more than 20 sales in the June quarter that had no recorded price (we do not mean undisclosed, we mean no price at all). This article is about the quality of the information you are using to make good long-term home-buying decisions.

Mal James is principal of James Buyer Advocates, which advocates on behalf of buyers of property over $1 million. Mal writes weekly auction reports, advice and in-depth market analysis on James' website.

Mal James

Mal James is principal of James Buyer Advocates, which advocates on behalf of buyers of property over $1 million.
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