The phrase market volatility is often used to explain why some types of properties appear to vary more in price than others regardless of the market. Properties subject to low market volatility are those whose prices can be more easily predicted than others; the prices of properties that are highly market volatile can’t be so easily predicted. This predictability is not in itself the cause of the volatility but a result of the way the market responds to different types of properties. So how does this work in practice?
If your home is a typical two bedroom apartment that is one of many in a block or blocks of apartments that are all very similar, the price can be easily predicted by recent sales in the building. If you try to hold out for a higher price, chances are your purchaser will simply find another apartment in the same block or one down the road.
Similarly, if you are selling a three bedroom house in a row of houses of similar age and construction and size block – such as a housing estate – then a similar predictability is likely. In other words, these properties are not subject to great variation in prices achieved. They don’t experience great market volatility.
On the other hand houses that are more unusual – perhaps unusually large and of unusual design or owned by a celebrity or have a special view or a private jetty – such houses are subject to much greater market volatility in that it is much harder for buyers to find something similar once they have set their heart on a particular property. In such cases, it is not unusual for demand to drive prices higher than would be normally anticipated if there are several interested parties – or conversely prices to drop at time of low demand.
Properties with high market volatility tend to do well at auction where bidders are competing for something that – once they miss out – will be gone forever, while those with a lower market volatility, that can be easily replaced often don’t always create the level of competition necessary for a successful auction.
