The term ‘discounting’ is being thrown around quite a bit in the media lately. With the overall market being pretty soft and gently sliding downwards, there are plenty of news stories about vendors having to ‘discount’ their homes to get a sale.

If you jump onto Domain.com.au, and click the ‘Reports’ menu item, you can view a list of statistics for any suburb in Australia. For example, Hope Island properties on the northern end of the Gold Coast:

Hope Island Statistics from domain.com.au - 30/10/2011

This shows an average current discounting level of 15.9% compared to 10.9% for the Gold Coast Council area.

The ‘Discounting’ figure is based on the difference between the advertised price when a property is first listed for sale compared to what it actually sells for.

The basic interpretation of this figure which commonly crops up in the media is that if vendors have to discount their home by 15.9%, then that must mean that the average value of a property in the area has dropped by 15.9%. This, of course, is complete rubbish.

Consider this analogy: if a car yard has a Commodore on the lot with a Redbook value of $10,000 and they set the price at $12,000, then proceed to advertise it in the paper as the special of the week for $10,000, are you really getting a $2,000 discount if you buy it for $10,000?

Most vendors want more than their property is worth, this is just human nature. And likewise, buyers want to pay less than a property is worth. Whilst real estate has no ‘recommended retail price’, it is relatively easy to determine what is ‘good value’ for a property based on recent sales of similar local properties. Whether or not a vendor chooses to advertise their property at a good value price, or choose a higher price to test the market and leave some room to negotiate is up to them.

In the case of Hope Island real estate shown above, where the average time on market is 267 day, chances are that some of the discounting is due to a fall in the market in that 9 month period, but most of that will be due to vendors overpricing their property in the early stage of the marketing campaign.

And when your home has been on the market that long, all you are going to attract is bargain hunters, so it will probably be necessary to accept a price less than market value in order to move on.

It is also interesting to note that there is generally a direct relationship between the ‘Days on market’ and the ‘Discounting’ number. Suburbs with a shorter average sale time will have less discounting. This can pretty much be attributed to more sellers pricing their property realistically from day one to get a good price in a short time, rather than being stuck on the market going stale.

So don’t let discounting figures scare you. Just make sure that you’re not a statistic by pricing your property well, marketing it well, and engaging the services of a great agent that will work their butt off for you, so that your time on market and discounting figure is way below average, and your sale price is above average.