Agent adding subdivision potential to asking price

[Maebh]

Hi, am puzzling over a situation with a house I am considering buying and would like others thoughts.

have put a written offer on a house that is for sale by negotiation. Properties in this suburb go for an average 20% over rv. We have made an offer that is slightly above that average. Agent is new to the industry and is seeking offers at a price that would be 90% over rv. He says this is achievable as the property has subdivision potential (technically it does but there are neighbour consents and a whole host of council issues that would need resolving first...and not every buyer would want to subdivide)

agent is trying to get us to withdraw our offer saying it is too low. Vendors getting additional advice on the property value. Don’t know if any other offers received.

i haven’t come across subdivision potential being added to the purchase price before...we are talking a couple of hundred k on top of market predictions for the top sales price.

thoughts?

[Learning]

15 years ago we were looking for our family home. There was this nice house that had plans (but no approval) for a couple flats to be built on the section. We were willing to put in an offer for the house as it was and as we wanted it to stay, but the agent wouldn't let go the "potential" value in the property and in his opinion the vendor wouldn't accept anything less. We walked away without offering. 15 years and no ground has been broken on that section.

[Maebh]

Yes I am wondering if the vendors will withdraw the house from sale rather than take a lower price now their expectations have been raised. Ah well will just have to wait and see!

[Davo36]

I doubt it's the agent who has talked up the price. He/she won't have told the vendors they can get a really high price.

It will have been the other way around, i.e. the vendors want lots and it's his job to try and get it.

[DaveW]

Nevertheless, the agent is obligated to present your written offer to the vendor.

[Anthonyacat]

It makes perfect logical sense for subdivision potential to be priced into the asking price - though then discounted for the risks of not being able to do it, as well as the costs and effort involved in doing it.

Take a fun hypothetical. I have a block of chocolate, which you can buy from any supermarket for $3. But my block of chocolate has a small (1%) chance of having a $5,000 cheque inside. A sensible person would pay more than $3 for this chocolate bar. Statistically, they'd pay anything up to $53 (being 1% chance of $5k, as well as $3 value of chocolate); that is its true worth. Depending on a bunch of factors, different people would pay more or less. If there were costly hoops to jump through to bank the cheque, the value would reduce accordingly.

"But I don't want to pay $53 for a chocolate bar that might only be worth $3!" you may say? Well, someone else will. So that's what it's worth to the market.

In your property case, the potential for subdivision makes the house worth more to people who want to subdivide. So, assuming there are people who want to subdivide, that's what it's worth.

Otherwise, what stops you from buying at a lower price, then selling to someone who wants to subdivide for more?


In saying that, don't pay a cent more than it's worth to you. Know your price, stick with it. If the vendor wants more, find somewhere else. There are a lot of houses out there.

[Don't believe the Hype]

Well said Anthony. This is well articulated advice.

[jimO]

It makes perfect logical sense for subdivision potential to be priced into the asking price - though then discounted for the risks of not being able to do it, as well as the costs and effort involved in doing it.

Take a fun hypothetical. I have a block of chocolate, which you can buy from any supermarket for $3. But my block of chocolate has a small (1%) chance of having a $5,000 cheque inside. A sensible person would pay more than $3 for this chocolate bar. Statistically, they'd pay anything up to $53 (being 1% chance of $5k, as well as $3 value of chocolate); that is its true worth. Depending on a bunch of factors, different people would pay more or less. If there were costly hoops to jump through to bank the cheque, the value would reduce accordingly.

"But I don't want to pay $53 for a chocolate bar that might only be worth $3!" you may say? Well, someone else will. So that's what it's worth to the market.

In your property case, the potential for subdivision makes the house worth more to people who want to subdivide. So, assuming there are people who want to subdivide, that's what it's worth.

Otherwise, what stops you from buying at a lower price, then selling to someone who wants to subdivide for more?


In saying that, don't pay a cent more than it's worth to you. Know your price, stick with it. If the vendor wants more, find somewhere else. There are a lot of houses out there.

is it Whittackers or Cadbury choclate?

[Maebh]

Ha, that makes a difference! Whittakers all the way.
your advice makes perfect sense Anthony...in this situation, the house is worth less to me as I am not interested in it for its subdivision potential. Others might be, am watching with interest to see what happens with it.