An analysis by the Reserve Bank of Australia (RBA) has found homeowners’ perceptions of their properties’ value are severely skewed when compared to market value.
It found that owners in half of all postcodes estimate their asset within 11 per cent of the true price.
However, in a quarter of areas, owners' average valuations are more than 20 per cent away from the average market value.
Speaking with Real Estate Business, award-winning principal and top agent at Harcourts Hills Living Andrew Drane said the results were higher than he’d expected.
“For the past 12 months, agents have looked like superstars because we’ve been getting prices way above expectation. But now vendors have caught up, and in some cases gone beyond the market value of the home," he said.
“Twenty per cent is very surprising, but in our area there is probably around a 10 per cent difference between expectation and value.”
According to Mr Drane, dealing with over-zealous vendor expectations is a skill most agents will need be familiar with in the coming months.
“People make the mistake of expecting agents to know what a property’s value is, but the property is worth what a buyer is willing to pay for it," he said.
“Most agents go in and overprice property if they start talking price with a vendor. We stay away from price guides and focus more on the process of getting the most money, rather than actual dollar figures.”
Up to 80 per cent of sales at Harcourts Hills Living are auctions, a process which according to Mr Drane makes negotiating on expectations much easier.
“If they want a million dollars and I think it’s worth $900,000, then that’s fine – let’s get as many people through those doors as we can and who knows in this market? With a good turnout and a bit of competition on auction day, we may be able to get that price,” he said.
According to the report from the RBA, the perceived value of an owner’s home may impact their financial behaviour.
“Postcodes that appear to overvalue their homes typically spend more, have higher leverage and choose riskier portfolios than postcodes that do not,” the report reads.
On the flip side, higher unemployment in a region is associated with underestimating the value of property.
The report states “households that are less likely to be optimistic, or are even conservative (pessimistic), the more likely they are to experience an unemployment shock”.
Older homeowners seem particularly vulnerable to overvaluing their asset, with each yearly increase in the average age of homeowners adding 0.25 per cent to the valuation difference.