When you think about selling your home, what is the first step? Choosing an agent? Deciding on a listing price?
Even a savvy and market-aware seller will have an idea of what their home is worth, or at least know a ballpark figure. Most people however will still engage the services of a real estate agent to conduct an appraisal of their property, to see what it could sell for in the current market.
What we have to remember through this initial pricing process is that most of the time properties sell at or near fair market value. Very rarely, but sometimes, they will sell for above market value, and sometimes below.
The equation is this…
If you overprice your property when it first hits the market, you have a very, very small chance of securing a price above market, if a rich investor comes along with no idea about property values and makes you an offer, or maybe Santa Claus will buy it? But in reality you have an even bigger chance of securing a price that is below market. Or at least below what you could have achieved if you did the right thing in the beginning.
The longer a property is on the market, the higher the chance
that it will sell for a price much less than it should have.
Have you ever heard of a property being on the market for 12 or 24 months
and getting a record high price? That’s because it doesn’t happen.
The biggest problem is when agents and property owners incorrectly price listings higher than what the market will be able to achieve. An example is as follows:
Mr and Mrs Brown wish to sell their home. They know what homes are selling for in their area, but they want some expert advice on what price to list their property at so that they can achieve the best result possible as they are moving interstate and need the best possible price they can get. They call in two agents and ask them what they suggest as a pricing strategy for their home.
Agent A inspects a home and wants to achieve the best result possible for Mr and Mrs Brown, and says to them that the market suggests their home should sell for between $380 and $400 thousand dollars, and they should list at a price of $410,000 Neg. expecting offers in the appraisal range.
Agent B inspects the home and really wants Mr and Mrs Brown’s house on their agency’s books, so they suggest a sale price for between $420 and $440 thousand dollars with an initial listing price of $450,000 Neg.
Agent B has just bought Mr and Mrs Brown’s Listing with their over-valued appraisal.
The outcome is this…
Agent B lists the property, Mr and Mrs Brown spend some money on advertising their over-priced house, only a couple of people come to look at the house in the first three months, and all of the genuine buyers realise that the house doesn’t compare to other properties in this price bracket and the house sits and languishes on the market over the next eighteen months without too many more people coming through.
Eventually Agent B “conditions” Mr and Mrs Brown’s price expectations down and after much frustration and emotional stress watching their house sit on the market for so long, Mr and Mrs end up accepting an offer of $380,000 because they have just had enough and want to finally move interstate.
What should Mr and Mrs Brown have done?
Firstly, Mr and Mrs Brown can be forgiven for wanting to believe Agent B, but the outcome has actually caused them more emotional and financial loss than they would have ever imagined.
Mr and Mrs Brown should have asked each agent to justify their pricing estimates with examples of other similar homes in similar areas, looking at the averages and the positive and negative points of each home comparing it objectively and without bias. The Market doesn’t tell lies. Bad agents do.
In the alternate universe…
Mr and Mrs Brown can tell that Agent A is honest and has their best interests at heart. Agent A has shown that four homes which are very comparable to the the Browns’ home have sold in the area for between $380 and $400 thousand. Mr and Mrs Brown list their property with Agent A for $410,000 Neg. as suggested.
Within the first couple of weeks there are enquiries, inspections and even a cheeky offer which is a bit low. Buyers show urgency when the property is new to the market because it looks to be priced well. Soon enough, Mr and Mrs Brown have an interested party who makes a reasonable offer and Agent A helps Mr and Mrs Brown negotiate to a sale price of $398,000.
Mr and Mrs Brown just made $18,000 extra by listing their property at or near fair market value. They are ecstatic and so relieved because they have wanted to move interstate to be with their family, and now it can be a reality.
Mr and Mrs Brown made an extra $18,000 by listing their property at or near
fair market value which was actually $40,000 less than Agent B’s advice.
Not only that, they gained an extra 15 months in their new life interstate!
To make sure you don’t fall into the trap of the Agent B’s out there, make sure you ask your agent to justify any price they are suggesting with some concrete evidence.
Not all losses are as bad as Mr and Mrs Brown’s example, but if listing at the right price can save you even $5,000, wouldn’t you be interested? Remember, if it sounds too good to be true, it usually is.
If you’d like an honest opinion of the market for your property, head over to the contact us page through the menu at the top of this page and give us a call. We are always interested in achieving the best possible result for you.