Colonial Sandstone Cottage House

Quantifying The Risk of Missing Out

& "The Real Price" Fallacy

August 2021

Not noticed to many prospective buyers of Real Estate when in the market to buy during the previous 18 months, during which we have had near unprecedented growth in across the board values throughout Australian Residential Real Estate, has been that if you miss the mark by 1% today, you'll may pay a 5% minimum more when you have another opportunity..

If that isn't in the realm of possibility then consider the following; your purchasing power is likely to be the same into the next 3 months as it is presently. Unless you are in the position where you know for certain that this will not be the case, for example you will have received a lump sum which then substantially increases your purchasing power, what you will find yourself doing is wishing back your thinking when you priced an offer, either with your Buyer's Agent, or by yourself.

This is risk is borne out by legitimate logical reasoning, which is a shame, being that; I am looking to purchase property A, property B that is very similar and comparable to property A and sold for $X a month ago, therefore I am going to put my offer down as $X, and maybe $X add $5. 

You will not be the successful bid.

To get at the heart of what is going on consider that this incredible increase in value has been driven by the seemingly non-CV19-affected availability of credit for Real Estate, buyer serviceability having not been affected due to fiscal policy, buyer volume has increased substantially (increased demand), on-market listing availability low to scarce (constrained supply). For those of you at all familiar with George Soros and his intellectual reasoning behind what makes asset prices (including bubbles) experience drastic increases and decreases, I am of the opinion that this time in history in the Australian Real Estate market is no different.

Those of you unfamiliar with his Soros' work, you should listen quickly to >this here< so that you can understand the point. The 30,000ft overview is the following; Asset Markets (Real Estate being an Asset), do not operate on perfect information. As human beings (the participants in Asset Markets), we are hopelessly irrational, emotional, and ultimately socially-informed when it comes to ascribing value to all things (including Assets), and so a feedback loop is created where it reinforces the psychology of those participating in the market ("How can I lose?","This will go on forever"), which then spurs on more buying and selling, until ultimately there is a hard end to the alley. The music stops.

When this happened in our Real Estate markets here in Australia in the late 2000's, there were several factors at play; lessening demand for middle class blue collar labour, substantial tightening in availability of credit for Real Estate to both the consumer + SMEs & corporates, and a periodic decline in transaction volume. Demand dried up. The psychology had changed. Real Estate markets didn't crumble here (broadly speaking), though there were some write-offs of equity and certainly some illiquidity for assets where there were gigantic ticket prices, or very few buyers by nature of the asset, the two going hand in hand.

In Negotiation