Menu

Understanding discretionary sellers

December 2, 2014

Discerning buyers need discretionary sellers

Death, debt and divorce are three major drivers of property listings. Unhappy events for those involved, but manna from heaven for estate agents in their eternal quest for listings.

By and large, these events occur fairly evenly over the property cycle. Yes, perhaps there is an uptick in debt- and divorce-prompted listings during economic downturns, but overall, they are the old reliables for agents. And the clients they deliver tend to be good ones for agents. Invariably, the vendor wants a deal to be done and are prepared to accept whatever is the prevailing market rate.

There is one more D – the discretionary vendor.  This group are a more mercurial bunch for agents to contend with.  They are in control of when they sell and whether to sell at all. Their biggest motivation is price and, more specifically, to come away with substantial equity to fund their next venture.

But for homeowners looking to switch, it’s not just about selling the current property for the best price. They also have half an eye on the replacement property.  Usually, they will have given extensive consideration to the desired characteristics – in terms of location, proximity to amenities such as schools, style and size – that the replacement property should possess. After selling the first property, the biggest fear is failure to find a suitable replacement and to be stranded betwixt and between. So unless they are confident that there is a reasonable pool of their preferred property profile in the current market, few are willing to consider selling the incumbent home.

Like the stock market, the property market works best when there is depth in the number of prospective buyers and sellers – it has liquidity to use the stock broker jargon.

The exacting requirements of many discretionary vendors means it can take several months for the property market to come alive volume-wise even after participants first see the signal of higher prices. It’s a Catch-22.  The market can only get going if there is stock. But initially there are few discretionary sellers because there is nothing to buy as a replacement. Eventually the inertia is overcome and volumes build.

Fortunately, today in most of our major capital cities, sales volumes are high as there is good liquidity. Higher prices have delivered a plentiful supply of discretionary sellers in the market. Buyers have an abundant choice of properties to choose from. Yes, you’ll have to pay 5 to 10 per cent more in most cities (and up to 15 per cent in Sydney) than you did 12 months ago, but without those price rises it would be far harder to find what you want.

And that’s the reality of the property market. There is a trade-off: abundant choice and good quality come with rising prices; falling or stagnant prices usually results in little choice or quality.

So putting aside value judgements about whether rising property prices are a good or bad thing, prospective buyers must recognise that there are risks around trying to time the market.  If you’re hoping for prices to fall, not only might it take longer to happen than you expect, but you may rue what you wish for when the downturn eventually arrives. If you wait until the market cools, you may risk the discretionary vendors withdrawing and it can be difficult to find what you want.

Photo