Selling at slashed prices and at a loss

We have seen a lot of recent coverage about properties being sold at slashed prices. For the average reader, a price slash is synonymous to a significant price drop, meaning the home owner is selling at a loss while the buyer is successfully getting themselves a great bargain. However, pay closer attention to the reports and you are likely to see a very different picture. It used to be the case that when home owners first put their properties on the market, they will set the price higher than market rates on purpose as the market was in good shape. For example, while similar properties were selling for only HK$5.2 million at the time, an optimistic home owner would expect prices to continue to go up, and therefore ask their real estate agent to set the asking price at HK$6 million, so as to reserve room for negotiation. As a prospective buyer counters with a lower figure, both parties make compromises and finally achieve a win-win situation.

But what is the agreed price going to be? According to my experience, if the economic and political environment at the time of negotiation hasn’t changed much, the price will fall in the ballpark of HK$5.5 million. However, if the seller is in a rush to trade the property for cash during a market downturn, they will have to accept the buyer’s counter offer at a much lower figure. If the home ends up selling for HK$5.3 million, the news headline will probably read “Unit sold with price slashed by 10%” even though it was actually sold at HK$100,000 higher than the market rate—that’s HK$100,000 more from the buyer’s pocket. Therefore, I’d remind readers to analyse such news coverage attentively to get a clearer idea of how “slashed” these property prices really are.

The media also likes reporting on home owners selling at a loss. Naturally, you might conclude that selling “at a loss” must mean a super bargain, overlooking the fact that there’s no necessary correlation between ‘a loss for the seller’ and ‘good value for the buyer’. You’ll see media coverage of home owners selling their properties at prices lower than what they had paid years before. However, in most cases, the reason behind these eye-catching sales is because the owner bought the home at a significantly higher price than standard market rate at the time. When selling years later, they realise the property garners little interest and its bank estimate is well under the purchase price, so they must drop the asking price and take a loss in order to cash out fast. Does this mean the property has good value for money? Not necessarily. If multiple home owners within the same housing estate need to make urgent sales and there’s only one prospective buyer, it’s likely that the most desperate seller will reduce prices further in a bid to strike a deal as soon as possible. This may trigger waves of sales at a loss, decreasing home prices for the estate, and the price drop won’t stop until prices in the estate have fallen back to a level in line with market rates.

The takeaway: selling at a loss doesn’t mean buyers will get a great deal, and slashed prices doesn’t mean the seller won’t make a good profit either.