The vendor discount rate is a figure which represents the difference between the original list price of a property versus its final sale price.
The value is expressed as the percentage, and tells investors how much of a discount or premium properties are being sold for in a specific suburb.
If the list price of a property was $450,000 and it sold for $400,000, the property was sold for a $50,000 discount, meaning the vendor discount rate was 11.11% (discounted amount divided by original list price - i.e. $50,000 divided by $450,000 which equals 11.11 %).
As an example, lets suppose 4 properties were sold in the made up suburb of Brownsville during month of February, as follows.
17 Staten Road, Brownsville - originally listed for $600,000, sold for $550,000 (vendor discount rate = 8.33%)
23 Tyson Ave, Brownsville - originally listed for $535,000, sold for $480,000 (vendor discount rate = 10.28%)
36 Tang Road, Brownsville - originally listed for $515,000, sold for $500,000 (vendor discount rate = 2.91%)
811 Michael Lane, Brownsville - originally listed for $438,000, sold for $360,000 (vendor discount rate = 17.81%)
The vendor discount in Brownsville for month of February will be the average of the 4 vendor discount rates above - i.e. (8.33 + 10.28 + 2.91 + 17.81) / 4 = 9.83%.
It is also possible for vendor discount rates to be negative, which means properties sold for a premium (i.e. above the original listed price). For example if a property was listed for $500,000 and sold for $550,000 it means it sold for a premium of $50,000. The $50,000 is used as a negative figure and divided by the original listed price to get the vendor discount rate (-$50,000 divided by $500,000 = -10%)
See example below for the hypothetical suburb Holyfield - lets assume there were 3 sales during month of April.
8 King Road, Holyfield - originally listed for $400,000, sold for $490,000 (vendor discount rate = -22.5%)
99 Michelle Street, Holyfield - originally listed for $512,000, sold for $500,000 (vendor discount rate = 2.4%)
44 Adira Road, Holyfield - originally listed for $600,000, sold for $780,000 (vendor discount rate = -30%%)
The vendor discount for Holyfield in this case will be. (-22.5 + 2.4 - 30) / 3 = -16.7%.
The vendor discount rate indicates how willing sellers have been to negotiate on price - a high vendor discount rate indicates that sellers are struggling to get interest for properties in the suburb, while a negative vendor discount rate indicates that the suburb is in high demand. This metric is helpful to gauge the level of supply and demand for real estate within a suburb, and should be used as a key part of an investor's real estate toolkit.
See an example showing the vendor discount rate for 3 suburbs over a 12 month period - as can be seen properties for all of these suburbs generally sold at a premium over this time, indicating that they are in demand suburbs with excellent buyer interest.
You can access vendor discount rates for all Australian suburbs by accessing PropertyDirector's Essential plan here - https://www.propertydirector.com.au/choose-plan.
