Pricing your home can be one of the most stressful and difficult parts of putting your house on the market.
We all want the highest sale price possible – and tend to push the envelope as far as price goes to yield the best result. But this can be fraught with danger, especially if the seller listens to well-intentioned, but often ill-informed advice from friends and family.
There are a lot of factors at play when working out how to price your property appropriately. These include current market conditions and number of properties for sale, property specs and quality or condition of the home, plus of course recent, local sales data.
In this blog, we share the three pricing approaches when listing a property.
- Market Price
We will be focusing on the first two in more detail, starting with overpricing.
Risks of Overpricing your Property for Sale
It’s not uncommon to lose $20,000 – $40,000 of your money simply by overpricing your property.
It’s an easy trap to fall into if comparing your home to recent sale prices down the road, or listening to unsolicited property valuations from friends and family. Some may even suggest adding an extra $20K to the price for ‘good measure’, which is not considered best practice.
The last thing you want is for your property to be sitting on the market for months.
This can lead to you losing thousands of dollars (your hard earned money) because it was overpriced to begin with, and has invited opportunist buyers seeking a bargain to swoop when you become more stressed and frustrated with the whole selling process.
Opportunist buyers strike when the seller has been sitting on the market for an extended period, waiting for the appropriate time to place a low-ball offer.
How do you know if you’ve over-priced your property?
If you’ve overpriced your property, expect to see low numbers of buyer inspections from the beginning of the marketing campaign. Is a tell-tale sign you’ve priced yourself too high.
If you continue on the market over priced for any prolonged period (3 – 6 months) only leads to frustration and angst for you.
Opportunistic buyers are usually sitting on the fence waiting for you to drop your price or even change agencies. And when you do – they swoop in, offer you a price much lower than the figure you’ve just dropped the property to, and many sellers end up accepting the low-ball deal because they are over the whole process.
The ultimate loser is you, the seller. Per the case study below, the agent may receive $1,000 less in commission but you’ll be out of pocket significantly thousands more!
Property listed at $575,000 = commission @ 2.5% = $14,375 in commission
Sale price at $535,000 = commission @ 2.5% = $13,375 in commission $1,000 less commission than a sale price of $575,000
But you, the seller, is down $40,000.
Case Study | Overpricing Your Home Based on a Friend’s Opinion
Here’s another case study which highlights the importance of getting a realistic property appraisal from an experienced real estate agent from the outset.
It will help set your property price appropriately – and expectations – from the beginning.
- A friend advised the seller that his property was worth $585,000 (based on an unsubstantiated view that the market was booming)
- Real estate agents valued the home between $525,000 to $560,000
- The seller ultimately agreed to list the home for $575,000 (their main concern was they wanted the buyer to cover some costs of purchasing their next property)
- To his credit, the seller did opt for a top-tier advertising campaign which we believe is crucial (click here to read more)
- The advertising campaign produced an offer of $550,000 from a cashed-up buyer within the first 20 days
- Seller rejected the offer, counter offer made back to the buyers of $565,000 (which the buyer rejected and purchased another home elsewhere)
- Seller’s property then slips off buyers radar for next 65 days
- An opportunistic buyer appears (and who knows the property has been sitting on the market for over 2 months) and makes a giveaway offer of $535,000 to a now desperate and frustrated seller, who accepts!
The moral of this story is don’t price your home based on emotion. It can cost you tens of thousands of dollars!
In this example, the seller could have sold for $550,000 in the first 20 days but they got greedy and ending up selling for $15,000 less than two months later.
Select your selling price wisely – working with your real estate agent. If you don’t, you will be the biggest loser in the long run.
There is only one solution to over pricing a property that lingers on the market – a massive price reduction of $30,000 to $50,000. Not a nice place to be venturing.
The second pricing approach we will explore is pricing to the market.
This is where the price is based on similar properties to yours that have sold in the last 90 days. You evaluate how long it took for these homes to sell (days on the market) and how much the price dropped from the original list price compared to the actual sale price. Looking at an average sale price of these homes can also give you a strong indication of the ‘pricing zone’ that will attract buyer interest for your home.
Similar to overpricing, this method also risks the seller becoming too emotional, particularly if they need to push the envelope to achieve the highest sale price as possible.
As a seller, you need to be able to remove the rose coloured glasses – and emotion – when pricing their home for the market as very few buyers see a property through the same lens as a property owner.
It’s important to take a holistic view when pricing to determine if the market is going to give you the price that you want. If not, it may be best to hold off on listing for sale until the market improves.
This pricing approach requires a lot more research and this is where the right agent can provide expertise and guidance. You need a straight-shooting real estate agent who is honest and transparent and doesn’t over-sell or inflate your expectations of the current property market.
Selecting the Right Real Estate Agent
The REIQ recommends that you call in around three agencies in to discuss their views on price. Each of these agencies should provide you with at least three examples of very similar homes to yours that have sold in the last 90 days.
What to look for?
Days on the market is an important number as it gives you a clear indication that you should sell within the same time frame.
However, if the days on the market is around 67 for the three properties this indicates that the start price was possibly high and that the sellers had to reduce their price before a buyer came along.
If your home sits among the examples given by all of the agents selected you now have a good gauge on price range you can expect – and the time frame you can expect to sell in.
The only job left now is select an agency or agent who knows how to market property.
You may think that this is pretty much straight forward. But very few agents are taught how to market a property. The general rule of thumb from agents is take some photographs place it on the internet, do the odd open home and hope for a buyer to appear.
Here at Gott Realty, we take a different approach and we believe it’s what sets us apart. Click here to read more on how we advertise and market homes to prospective buyers.
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