How do you determine 'value' or whether something is 'over-priced'?

OwlsZat

qrx wrote: »

Anyone seeing a change in attitude? I'm noticing seller greed is being less effective. Are people copping on and walking away from this bidding war nonsense? I've got a gut feeling things are starting to plateau.

http://m.independent.ie/business/personal-finance/property-mortgages/more-people-getting-goahead-to-borrow-to-buy-home-as-mortgage-approval-numbers-soar-36173852.html

Not sure I see that. Many more buyers, similar amount of property. Seems to be continued frenzy imo.

kippy

Can someone explain what overpriced means? I see it mentioned a lot.

OwlsZat

What part of it are you struggling with.

BarryD2

OwlsZat wrote: »

What part of it are you struggling with.

The value of something is what someone else is prepared to pay for it. If a product or house or whatever is 'overpriced' then no one will buy it. If someone buys it at whatever price, it cannot be 'overpriced'.

Things can be priced beyond the means of some people but that's not overpricing.

Of course, if some people pay inflated prices for goods or houses, then find they can't afford them - well tough, that's the other side of the coin. They should be stripped of those assets.

OwlsZat

BarryD2 wrote: »

OwlsZat wrote: »

What part of it are you struggling with.

The value of something is what someone else is prepared to pay for it. If a product or house or whatever is 'overpriced' then no one will buy it.

That's called the price of something, not the value. Your second statement is also not true in a number of cases.

Bob24

BarryD2 wrote: »

If someone buys it at whatever price, it cannot be 'overpriced'.

That's not really what overpriced means.

You can say to a friend visiting Dublin and who wants to go to a restaurant in Temple Bar: "you should avoid this tourist-trap restaurant, it is overpriced".

Still it could be a very successful restaurant which is completely full every night with people paying the asking price for their meals, but there is no problem with you calling it overpriced because you don't see value for money in what they are offering.

BarryD2

OwlsZat wrote: »

That's called the price of something, not the value. Your second statement is also not true in a number of cases.

I see what you are getting at but depends on how you measure 'value'. But since value in the context of property mostly relates to price or cost, I think it's fair enough

Bob24 wrote: »

That's not really what overpriced means.

You can say to a friend visiting town and who wants to go to a restaurant in Temple Bar: "you should avoid this tourist-trap restaurant, it is overpriced".

Still it could be a very successful restaurant which is completely full every night with people paying the asking price for their meals, but there is no problem with you calling it overpriced because you don't see value for money in what they are offering.

How can the restaurant be 'overpriced' if it's full every night?? It's too pricey for you or your friend maybe, but sin scéal eile. If the restaurant was empty of customers and very pricey, then we could say it was 'overpriced'.

Bob24

BarryD2 wrote: »

How can the restaurant be 'overpriced' if it's full every night?? It's too pricey for you or your friend maybe, but sin scéal eile. If the restaurant was empty of customers and very pricey, then we could say it was 'overpriced'.

See definition and examples here: https://www.collinsdictionary.com/us/dictionary/english/overpriced

The key point is it is a subjective thing. You could think something is overpriced and someone else be OK with it.

In the case of the restaurant tourists could think it is fine because that is all they have seen and it is close to their hotel, whereas you don't see any value in it because you know another place which does better food for less money but is in a part of town which is a bit off the usually tourist routes.

BarryD2

Don't get me wrong, I too think that property in some places is priced beyond the means of 'ordinary' people. But it's never 'overpriced' if it sells.

We bought a house 25+ years ago and lived here ever since. I hated the whole process at the time, my opinion of estate agents etc., took a very steep nose dive. It can be 'dog eat dog' and property is the one area that seems to draw out the worst in terms of greed in our society. But there you are, it's long been like this.

kippy

Bob24 wrote: »

See definition and examples here: https://www.collinsdictionary.com/us/dictionary/english/overpriced

The key point is it is a subjective thing. You could think something is overpriced and someone else be OK with it.

In the case of the restaurant tourists could think it is fine because that is all they have seen and it is close to their hotel, whereas you don't see any value in it because you know another place which does better food for less money but is in a part of town which is a bit off the usually tourist routes.

This is a good piece of information.
So the term overpriced isn't measurable in any way shape or form? It's an opinion?

OwlsZat

Barry, If you were suffering anaphylactic shock and ran to the nearest pharmacist, who demanded €10k to dispense a lifesaving epi pen. Would it be overpriced? I mean life is priceless, and you bought it, so obviously it can never be overpriced. Yourself and Martin Shkreli would get on well.

kippy

OwlsZat wrote: »

Barry, If you were suffering anaphylactic shock and ran to the nearest pharmacist, who demanded €10k to dispense a lifesaving epi pen. Would it be overpriced? I mean life is priceless, and you bought it, so obviously it can never be overpriced. Yourself and Martin Shkreli would get on well.

I wouldnt think that is reflective of property in any way for numerous reasons.

The_Conductor

kippy wrote: »

This is a good piece of information.
So the term overpriced isn't measurable in any way shape or form? It's an opinion?

Yes- however, when you have the likes of the Bidx auctions- where less than half all lots elicited a bid at all- it implies the AMV for the properties were overpriced. I.e. they were set at a level that didn't find someone who was willing to ascribe the suggested value to the property- that the auctioneer had in as a reserve.

It happens all the time- but when you have 340 odd lots- and over half of them don't get a bid at all- then, you've done something wrong somewhere- the obvious thing- you've set an improbably high price on the property- aka it is overpriced.

Then again- you have other properties- which just soar beyond what anyone thinks is natural territory- because you had people bid each other up at auction. Its what auctioneers like to see- and are used to. Thursday's zero bids on so many lots- are waving one hell of a white flag...........

kippy

The_Conductor wrote: »

Yes- however, when you have the likes of the Bidx auctions- where less than half all lots elicited a bid at all- it implies the AMV for the properties were overpriced. I.e. they were set at a level that didn't find someone who was willing to ascribe the suggested value to the property- that the auctioneer had in as a reserve.

It happens all the time- but when you have 340 odd lots- and over half of them don't get a bid at all- then, you've done something wrong somewhere- the obvious thing- you've set an improbably high price on the property- aka it is overpriced.

Then again- you have other properties- which just soar beyond what anyone thinks is natural territory- because you had people bid each other up at auction. Its what auctioneers like to see- and are used to. Thursday's zero bids on so many lots- are waving one hell of a white flag...........

Indeed. But could it be that there are only so many people that fit the profile of an auction buyer in the first instance? There have been so many auctions over the past number of years that there simply aren't enough people willing to use that method of purchase left? The quality of stock and possible legal issues with a lot of auction material narrows the market considerably in my limited knowledge of it.
I wouldn't necessarily call them overpriced in the same way as a house that goes a lot over asking could be called underpriced initially.

OwlsZat

kippy wrote: »

This is a good piece of information.
So the term overpriced isn't measurable in any way shape or form? It's an opinion?

Price is set on what people are willing to pay. Value is the buyers opinion of the price they paid relative to the items intrinsic worth. For a house it's intrinsic worth is a combination of the cost of the land, materials used, and wages paid to those that made it. Good value is when the price is closely matched to the items intrinsic worth. Alternatively, it could become overpriced. Things being overpriced largely isn't an huge issue. Unless for property, if the cost of repayments for an average mortgage on an average salary become unaffordable. For example, as interest rates increase and the average customer has to default. At the end of the day that's capitalism at work. The bank takes back the asset, and pockets the repaid loan amount. Only person burned is the borrower, who spent however long paying back a loan they couldn't afford and ends up with nothing. Absolutely no fear of that happening here though. Wages are growing, houses are cheap, and all lending is now responsible.

The_Conductor

Guys- we're getting into a philosophical argument over what constitutes 'value' and how you determine that something is 'over-priced'.
If you really want to muse on this topic- please start a new thread.

The_Conductor

Hived off into its own thread. Please keep discussion of 'value' and how to decide whether something is 'over-priced' here please.

kippy

The_Conductor wrote: »

Guys- we're getting into a philosophical argument over what constitutes 'value' and how you determine that something is 'over-priced'.
If you really want to muse on this topic- please start a new thread.

Sorry for starting that particular tangent.

I just wanted to get a grasp of what the term meant to various people as it get's bandied around a lot about property and everyone seems to have a different take on it.

The_Conductor

No need to apologise kippy- but it does deserve its own thread.

Bob24

kippy wrote: »

This is a good piece of information.
So the term overpriced isn't measurable in any way shape or form? It's an opinion?

Yes depending on how you use the word it can relate to perceived value for money so there is no objective way to say something is overpriced or not.

Having said that because it is a subjective notion doesn't mean people's views should always be discarded as "just an opinion". Opinions can be wrong be also right so when someone says some properties are overpriced they might have a point even though those properties do sell. Typical example would be houses in empty estates in supposedly commuting countries far from Dublin where no-one wanted to live, just before the crash. Yes these houses were very well at high prices due to easy credit availability and and excess optimism about ever growing property prices amongst the general public. But someone saying "these are totally overpriced, no-one wants to live there" would have been pretty right in holding that opinion at the time.

myshirt

Yields should reflect risk. The classic back of an envelope example is if a equity with good fundamentals is giving you 10% and a German bond or 'risk free' giving about 2%, houses should fall somewhere in the middle.

When it's out of kilter, either there is something wrong with house prices or rents. Usually it is the house prices, but it is the rents now.

Something is overpriced when the market seems to be going mad about things that really do not add any long term value.

BarryD2

kippy wrote: »

This is a good piece of information.
So the term overpriced isn't measurable in any way shape or form? It's an opinion?

It is just that, an opinion. And people's opinions will vary as widely as the depth of their pockets.

OwlsZat

I don't think I've ever bought anything overpriced

riclad

You can look at a house ,say its 200k, how much will it get per year if its
rented out.is the rental return 5 0r 10 per cent.
theres a low supply of houses for sale in dublin .
SO prices are rising , say you want to buy a house in rathmines ,theres
a lot of people who want to live there ,
Its very hard to find a site to build on there ,
Theres very few houses being built there
1000,s of people want to live in dublin .
its classic economics ,supply is low ,demand is high.
look at the property price register .
Is the house overpriced vs house sold in the area ,
of similar size, 3 bedroom semi d .
If you want to live in a middle class area ,you,ll need a large mortgage.
Theres plenty of cheap houses in athlone or longford .

Houses were overpriced in 2004 as banks were not being regulated
and lending was reckless .
Banks have rules to follow now ,
you can borrow maybe 3-4 times your income .
They test could you pay an extra 2 per cent if loan rates were to go up.
The lack of building in the last 10 years is causing prices to rise now.
look on daft.ie how much are other houses in santry ,phibsboro etc

Stoner

OwlsZat wrote:

That's called the price of something, not the value.

No it's the value

You've a cost side and a value side, Value is what people are prepared to pay.

Price is different again, it's often just an invitation to treat.

Zero Point

There was a house went up for sale some time ago in a busy commuter town north of Dublin. It was in need of complete renovation. I thought it was priced accordingly to reflect the need for major work required by someone buying to turn it into a home or an investor possibly to flip. I suspect it got a lot of interest as within days the price increased by €30k which would have effectively wiped out an investor's profit or deterred a potential home owner due to the substantial works required. I imagine any previous interest in it fell off a cliff and it's still sitting there. The first price was reasonable. The second made it overpriced.

The_Conductor

Bob24 wrote: »

That's not really what overpriced means.

You can say to a friend visiting Dublin and who wants to go to a restaurant in Temple Bar: "you should avoid this tourist-trap restaurant, it is overpriced".

Still it could be a very successful restaurant which is completely full every night with people paying the asking price for their meals, but there is no problem with you calling it overpriced because you don't see value for money in what they are offering.

All that demonstrates is that the inherent 'worth' of an item differs to different people.

The old Roman philosopher Publilius Syrus said 'Everything is worth what its purchaser is willing to pay for it'.

I'd be inclined to agree with this train of thought- and thus its not that something is over priced- or under priced- its that its not at the price point at which the marginal prospective purchaser is willing to meet the asking price.

Supply and demand are only two of the factors at play which determine the inherent 'worth' someone is willing to ascribe to a given property- however, they are the dominant determining factors in an Irish context- as we annually issue between 2-3 times more mortgage approvals in principle- than we have mortgage draw downs- which in turn is about 50% higher than the number of new properties constructed.

Publilius Syrus knew what he was talking about- and its equally applicable in the modern world- just because I don't see the inherent worth in a plate of food in the Temple Bar- doesn't mean that someone else won't.........

Bob24

The_Conductor wrote: »

All that demonstrates is that the inherent 'worth' of an item differs to different people.

And that overpriced is a subjective notion.

My point was that as opposed to what the OP said, it is linguisticly perfectly correct to use the word “overpriced” about something even though someone else is willing to pay that price (as per the exemple I gave).

CruelCoin

OwlsZat wrote: »

http://m.independent.ie/business/personal-finance/property-mortgages/more-people-getting-goahead-to-borrow-to-buy-home-as-mortgage-approval-numbers-soar-36173852.html

Not sure I see that. Many more buyers, similar amount of property. Seems to be continued frenzy imo.

Back in the boomtime, my brother bought a house for 280k approx.
At the time I tried to talk him out of it.
House prices spiraling, despite more homes being built than population growth warranted.
It was plainly a bubble. **** 'im. I was the gob****e who knew nothing.... Enjoy your negative equity ****er.

Anyway.

What we have now is not so much a bubble as just an overpriced market from a lack of supply.
This will correct downwards when building really kicks in, rather than pop.

The area around here the lowest price home would be for an 850 sq ft house or bungalow with limited room to extend due to the nature of the houses and small gardens, now they're still an eye-watering amount of amount of money because of the area, some have done bizarre things to try and make them work as a family home.

Nobody today would spend a fortune on an 850 sq ft house as a family home they only do so because of where it is located, so its all about location.

How is location valued.

Also, after the crash, the area recovered very quickly.

Ray Palmer

myshirt wrote: »

Yields should reflect risk. The classic back of an envelope example is if a equity with good fundamentals is giving you 10% and a German bond or 'risk free' giving about 2%, houses should fall somewhere in the middle.

When it's out of kilter, either there is something wrong with house prices or rents. Usually it is the house prices, but it is the rents now.

Something is overpriced when the market seems to be going mad about things that really do not add any long term value.

If you used this calculation in Ireland before 2008 you were steam rolled by the government into a loss. They added PRSI and USC to rental income so anything less than 10% rental yield meant you went to a loss.
That was done while rents were dropping. All that tells you as a landlords you must always maximise rental income to recoup the losses and prepare for any other random increase in taxes.

riclad

You look how similar house,s are selling for, see the property price register , look on daft.ie , myhome.ie .the value depends on the area,
Is it close to bus stops, luas, shops, schools.
Also theres middle class area,s , a 1bed apartment in dublin 4 is more expensive than a house in finglas.
Theres a limited amount of sites in dublin suitable for house building ,
i do,nt think there,ll be a big drop in prices in dublin.
What seems to be going on now is we are reaching the upper limit,
in regard to prices going up in dublin.
the price of a house is build cost plus x .
x = market forces ,demand , how many people want to live in an area .
People who are over 20 and earn enough to borrow and obtain a mortage.If you want a house in stoneybatter you have to pay at least x amount,
its probably impossible for a builder to find land there to build new house,s there .
You also have to take into account rental costs ,
do you want to pay 1000 euro for rent ,
would you not be better off paying a loan and you will own a home in 25 years .
Say you buy a house in the libertys in dublin , i think it,ll hold onto
its value over the next 10-20 years .
You,ll have to pay more for a house with large garden than a terraced house if its in the city centre.

LuckyLloyd

I find it personally fascinating how people talk themselves into knots around houses and feel it belongs in its own bespoke territory when it comes to price, value, affordability, risk, etc. Often you'll see people who are perfectly capable of charting a reasonable path with how they spend in every other aspect of their lives, but seem to be overwhelmed when it comes to property. I get that the purchase price and commitment is so much bigger, but the same fundamentals apply to paying rent as any other service; or buying a house as it does any other good.

Something is probably overpriced if you can find comparable items that have sold recently for much less than the asking price you are being faced with. That's it. Just because someone is willing to pay it doesn't stop making that true. It might suck because you really want a particular type of house in a particular type of area to realise that you're on the wrong side of the curve, but that will be the situation. You can accept you're overpaying or you can step away and look for a different type of thing. In any market you want to start a run or trend rather than conclude it.

You might decide that - as you intend to live in a particular house long term - it's what you want and you can afford it and you're buying it anyway. But that does not mean you didn't overpay or underpay. It just means you didn't care. If you're investing you absolutely need to have a sense of price, because yield and range of resell value will dictate the success or otherwise of your investment. Again, just because you paid a price doesn't mean that's what it was worth.

LuckyLloyd

BarryD2 wrote: »

The value of something is what someone else is prepared to pay for it. If a product or house or whatever is 'overpriced' then no one will buy it. If someone buys it at whatever price, it cannot be 'overpriced'.

Things can be priced beyond the means of some people but that's not overpricing.

Of course, if some people pay inflated prices for goods or houses, then find they can't afford them - well tough, that's the other side of the coin. They should be stripped of those assets.

If a bag of coffee is on sale in a supermarket for $3.50 but you pay $5 for the same bag (same brand, same style, same weight) in the newsagent down the road because it was closer to your house did you overpay?

How about if we get some bad weather again this winter and the local hardware shop increases the price of shovels as they run out, and you get the same shovel your neighbour bought two days ago for 20% more - did you overpay?

Ray Palmer

I think some people miss the full understanding of supply and demand. Price is not just about what people are willing to pay but what people are willing to supply at.
When house prices dropped 2nd hand house for sale dramatically dropped. The percieved value of the property didn't matter they weren't for sale so you couldn't buy them.
Negative equity is often misunderstood too with some assuming every house bought during the boom was in negative equity. Reality is it only had an effect on some and if you could service your mortgage there was no problem. I know people who gave up houses they could afford due to negative equity but would have a better LTV and paying less than they do in rent.
Ultimately the ability to pay is the key and value is some what opinion but we'll serviced areas do have a value as do place close to major areas of work.

riclad

A house is overpriced , if it loses value, if you could buy a similar house
for a lower price.
IF someone is rich i see no problem if they want to pay 500k to live in
a high status area .And they can afford to pay the loan back
in 20-25 years ,even if interest rates go up.
The problem in boom people were paying 300k for a standard semi d
house which left them in negative equity when prices fell.
An investment property is overpriced if the rent does not cover the cost
of buying it or it gives you a low annual profit ,say 5 per cent after tax,s
and expenses .

The_Conductor

riclad wrote: »

A house is overpriced , if it loses value, if you could buy a similar house
for a lower price.

I honestly have no idea how you make this out.
The international norm is to *depreciate* the capital value of residential housing by between 2 and 4% per annum. It is entirely normal for a residential property to loose value. The belief in property prices only going in one direction- is almost unique to Irish people- and the manner in which it is not codified into the tax system, is an aberration in international norms.

It is normal for property prices to rise and fall in absolute terms- as it is also normal if you shop for long enough- to find a similar house for a lower price. This is *normal* and has no bearing on the relative value or worth of any other given property- at any other given point in time...........

riclad wrote: »

IF someone is rich i see no problem if they want to pay 500k to live in
a high status area .And they can afford to pay the loan back
in 20-25 years ,even if interest rates go up.

20-25 year mortgages- are- unfortunately- the exception rather than the rule. These days most folk are on 30 or even 35 year mortgages. If someone has the net income to pay back a large mortgage in 20 years, and has been stress tested to account for interest rate rises (and they are rising)- then the property they buy- is worth what they pay for it- to them.

What something is worth though- is subjective. Just because you or I might think that 3 bed semi in Stepaside isn't worth 300k to you or I- it doesn't mean there won't be a procession of other folk up the street- who are more than willing to consider it worth 300k, or more, to them.

A property is overpriced- if there is no prospective buyer out there willing to pay what the seller is seeking for it. Thats it- plain and simple. The fact that its overvalued by 150k for you or I- but only 50k over-valued for someone else- means nothing. Its entirely subjective.

riclad wrote: »

The problem in boom people were paying 300k for a standard semi d
house which left them in negative equity when prices fell.

Why is this a problem? This is *normal*- not an aberration.
This whole belief in property holding value- really needs to be knocked on the head. If you were in Germany- the acceptance is that any given house looses 2% of its current value per annum- ad infinitum. This is normal. In the US- you can offset a depreciation in property value against taxable income (which is what Kutchner- Trump's son-in-law did- its entirely legal and above board- perhaps not ethical- but most certainly legal). The Irish belief in property being some sort of sacrosanct investment that shouldn't loose value- is nuts- its completely and utterly coconuts.

riclad wrote: »

An investment property is overpriced if the rent does not cover the cost
of buying it or it gives you a low annual profit ,say 5 per cent after tax,s
and expenses .

It depends.
Different landlords have different cost models- e.g. the REITs and a cohort of other landlords, comprising >60% of the total amount of housing stock in the residential letting market in Ireland- load the properties they are letting with improbable amounts of debt. Some cute international companies- lend their Irish affiliates the money to build or buy units- at completely arbitrary interest rates (one infamous Canadian group in the Irish market- lent their Irish branch the money to buy units at an interest rate of 14.5%- specifically so it can never make a profit).

There are some very esoteric models in operation out there- and often a headline 'profit after costs'- quite simply doesn't enter the equation.

A majority of the rest of the units- either have no debt at all associated with them (often inherited properties)- or a debt that isn't associated with the open market value of the property (often people's sole property that they are letting out while they simultaneously are renting elsewhere themselves).

One of the changes introduced in this year's budget- was to make mortgage interest 100% deductible for all landlords. However- this is highly problematic- as it provides a perverse disincentive to paying down debt- and simultaneously- does nothing for the cohort of landlords out there who are taxed on their rental income- but have to rent elsewhere from their net income- aka they can't offset rental income against rental outgoings..........

A headline 'profit' is not the be-all and end-all for a lot of landlords- many have other motivations too- esp. multinational groups- who are treated exceptionally generously from a tax perspective- and can simply use their Irish assets as a cost sink against which to write off taxes accrued elsewhere.......... It shouldn't happy in the real world- but any REIT or landlord with reasonable scale- does just this.

The idea of the level of rent resulting in a 5% ROI after costs for a landlord- is a quaint and simplistic manner of looking at letting property as a business model- which is why it was suggested if a straight 20% tax was charged on all rental income at source- it would result in over 3 billion extra in tax being collected by the exchequer per annum. Yet- its toxic to say this out loud.

Its not a simple business model any longer- by a long shot- and this is the stated preferred model of Threshold and other advocacy groups- well, be careful what you wish for- you just might get it............

Eric Cartman

if the estate agent isn't crying when the seller accepts then its over priced.