By Kirsten Craze
Well-meaning agents can set themselves, and their vendors, up for disappointment if the comparable sales they present aren’t on the money.
The NSW Property and Stock Agents Act 2002 states that agents must provide sellers or prospective sellers with evidence of how they reasonably reached an estimated selling price for a home. Part of that evidence could be providing comparable sales. While finding a handful of similar sold properties within a particular neighbourhood and timeframe might have seemed a reasonable ask for typical properties prior to COVID-19, post-pandemic “comps” have become more challenging.
Managing comparable sales during COVID-19
REINSW Residential Sales Chapter Committee member, Mechlenne Douaihy, is CEO of Merc Real Estate and a practising agent in Sydney’s Hills District. She said the current climate has thrown a spanner in the works of what was already a complex process.
“When COVID happened and everything came to a dramatic stop in the market from March to July, it became challenging. When we look for comparables, typically it's in the last three months, but it's really difficult when everything stalls and there weren’t any sales,” she said.
“So what we’ve been doing is going further out, as in the timeframe, and then we take into consideration land size, the quality, material facts, unique factors - things like that. Then you need to ask, ‘Is this property superior, or inferior?’.”
Ms Douaihy said agents still struggling to find suitable “comps” might also need to widen the radius of addresses.
“The magic formula has always been one to two kilometers, but we're just really adapting,” she said, adding that in such unprecedented times agents just need to be transparent.
“Whatever we give the vendors, we give the purchasers and note why we came up with the price we did. Clients are very astute these days, so you need to know your stuff,” Ms Douaihy said.
To back up the comparable sales, she said it’s more than just facts and figures.
“We give them a list of reasons why it’s different to what they have. Then we show them photos, not just a facade photo but we go into the listing and we show them internally, externally and aerial views.”
Updating throughout the campaign
One thing Aussies have learnt in 2020, is that life can change in the blink of an eye - and the same could be said for the life of a sales campaign.
“We send weekly vendor reports with comparable sales. Every week they're being told about price changes so they can make a proper decision when an offer comes in,” Ms Douaihy said.
“We also ask buyers when they come through, 'What properties are you comparing this to? What do you think this is worth?’ Most buyers have been looking for several weeks, so it's good coming from them because they've walked through the homes, and they know what's sold.”
Greg Jemmeson, lawyer and partner at Jemmeson Fisher, a legal and accounting firm specialising in real estate, said the law accounts for market movements so agents shouldn’t be afraid to adapt pricing and comparables.
“If during the campaign the expectations of price go down and you have to change the quoted price, then REINSW has form templates that the agent can fill out and send to the owner saying, ‘Look, COVID has hit us harder than expected, everybody's leaving the inner-city. Your property is no longer worth a million, it's probably now worth $900,000.’ You can attach that to your agency agreement and don't need the vendor to sign off, but to change the pricing, you've got to provide that in writing,” he explained.
Understanding the black and white - and grey areas
While the NSW legislation doesn’t have hard and fast rules about how agents determine comparable sales, Mr Jemmeson said common sense should prevail.
“They haven't gone to the same degree as Victoria, which has legislated how many comparables you must have. Best practice in NSW would be at least three that aren’t more than six months old. If there are none in the last six months, consider getting a valuation,” he said.
He added that if agents are concerned about providing price guides due to current events, they should feel confident that thorough homework will protect them.
“If circumstances change and prices are turned on their head, there's no point doing an appraisal based on something from six months ago. Markets are fluid,” he said.
If Mr Jemmeson could make one change to the NSW legislation, he said setting the rules out in black and white - like in Victoria - would assist NSW agents in doing their job.
“It's about transparency and communication. That’s essentially what it all comes down to, getting the pricing right with your comparables,” he said.