Do All Properties Fall at the Same Rate?
Mar 15, 2023
They say that quality properties hold up better in a downturn than inferior properties. How does that work?
Imagine you’re selling your property at auction.
0 bidders … this is a very bad scenario
1 bidder … also very bad especially since at an auction he/she will realise there is nobody else interested
2 people are interested … better scenario … they’ll bid it up and you’ll end up selling for the price the underbidder was willing to push to.
3 people are interested … ok now we’re in business … again they’ll all bid it up and you’ll end up selling for the price the underbidder was willing to push to
From this point onwards the benefit to you of each additional bidder is marginal.
Now in general good properties have more interested parties, and inferior properties have less. So when the market weakens the good properties go from having 10 bidders down to 5 bidders … but the weak properties go from having 2 bidders down to 1 or 0 bidders.
As explained above, the difference between 10 bidders and 5 bidders is not much … but the difference between having 2 bidders and 1 bidder is enormous.
This is why in a downturn the inferior properties fall harder than high quality properties.
This is also the reason why it is more important to engage a highly skilled sales agent when the market is weak than when the market is strong. Because when there is only 1 interested party the price is going to come down to how good a negotiator your selling agent is.