'For what it's worth' the concept of property prices.

house not for saleThere is an unusual disparity at the moment in the property auction market versus the rest of the market, and that primarily lies in the level of houses being withdrawn from auction, in the Irish Times there was a list of properties up for auction, of note, and what wasn’t mentioned in the story was the degree to which properties are being withdrawn. Out of the 32 properties listed 20 were withdrawn, and that means approximately 62.5% must not have been meeting their required price.

of the 12 properties listed in South Dublin only 1 sold, this could be looked at several ways, on one hand the properties in on the South side may be priced into a market that is not accessible to most people to begin with (one listing was €12 million), another is that perhaps the prices there are just too high and they appreciated too fast.

In North Dublin and West Dublin every property listed sold, and again, this can be interpreted different ways, on one hand the prices are much less than the ones in south Dublin and the potential market is therefore that much larger, or perhaps parts of North Dublin are holding their values better, until we see how results come in several months from now we won’t know.

One thing that is important in all of this though is the concept of ‘what a property is worth’ and it’s important to remember that a property is actually only worth what somebody will pay for it, that statement may seem over simplified or common sense but it’s fact. A castle in Camaroon will sell for less than a Semi-D in Donnycarney, and granted in that example I’m not comparing like with like in terms of location but in terms of the size of the building etc. the analogy holds. Property can only be worth what a potential buyer will pay for it, that’s honest economics.

sold signHowever, economics aside, it is still down to a seller to make the decision to up sticks or not, and this is where we will see the alignment of seller/buyer sentiment. If a seller doesn’t get a certain price, a price they think is ‘worth it’ then they won’t sell, equally if a buyer doesn’t see the property as being ‘worth it’ then they won’t buy, the seller has a choice of staying put or trying to sell again, if they try to sell again and don’t get the price they want then it will likely re-enforce the belief that their property is overpriced and they will then have to lower the AMV (advised minimum value).

This plays back and forth until other sellers lower their price and get the buyers or the first seller lowers to get a buyer. One thing that wont’ happen is for every seller to hold off until they all reach a certain price, and that is part of the momentum behind the current buyers market. In a sellers market the inverse holds true, people won’t accept a lesser price because the weighting of buyers to sellers and the sentiment behind it is in their favour.

in the dessertThe analogy I use for talking about the subjective nature of value is this: ‘how much is a glass of tap water worth?’, most people say it’s value is next to nothing, however that’s due to context, if the context changes so does the value, which brings the next question ‘how much is a glass of tap water worth if you are in the desert and at risk of dying of dehydration?’. In this circumstance you could extract almost any amount of money out a potential buyer, and that’s kind of how the free market works, the first example is a buyers market and the second is a sellers.

What this means for property in Ireland is that for at least 2008 and probably most of 2009 the market will rest firmly in favour of buyers rather than sellers, you can say it’s due to over supply, cheap money, or the credit crisis, however, there are certain trends that will come with this and that is perhaps the more interesting part of the story.

drugsOne thing that will start to become less commonplace is stone-wall prices, or a price that a seller will totally refuse to shift on. As more sellers compete for the pool of buyers prices will drop, change, and morph in ways quite apart from the way things were done for the previous five years. For a while houses were being advertised with price drops priced in, bad practice, and fairly transparent to anybody willing to do a little digging. The next trend likely to arise will be ‘front porch’ offers, where people will make offers that are dependent on repair/remodel works being carried out, it used to be the case you bought what you could and had to fix it up, however, a buyer is now in a position to request improvements as part of the offer.

There is no doubt that the property market is in the doldrums right now, but anything that goes up has the ability to come down, stocks do it, and in fact everything seems to follow this trend other than your age! It doesn’t mean all is lost though, in fact for buyers the cards are stacked in their favour, that doesn’t infer that now is ‘the time to buy’ but if that’s what you are planning to do then the winds are at least in your favour, some observers get more and more gloomy by the day, others seem to find a silver lining in a cyclone. The latest EBS report showed that 39% of their customers believed their property had increased in price in the last year.

total confusionThey will therefore be part of the group earlier mentioned, who won’t sell their property for anything less than ‘what it’s worth’, the interesting thing there though is that this manoeuvre may actually compound the problem of prices. If people won’t budge on prices then their properties stay on the market and when properties don’t sell it infers lower values due to the changing ratio of supply and demand, the buyer who will accept a lower price in essence pass that price region on to people who won’t sell at that price. ‘What it’s worth’ is a market driven figure, not something you are graced with creating yourself, naturally you have the right to put a property on the market for any amount you want but if it doesn’t sell then the thinking must therefore be flawed, if you don’t agree then please call me, I have a few €20 glasses of tap water you might be interested in.

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