SIX MISTAKES TO AVOID WHEN PRICING YOUR HOME
No matter how hard you try, it’s incredibly difficult to be completely even handed when thinking about the current market value of your home. It’s only natural to be emotionally attached but this is exactly the reason you need an impartial arbiter to help you set a price rationally.
Unfortunately, the most common mistakes home sellers make always lead to the same outcome; a protracted marketing period, extra advertising costs, excessively cautious buyers, and a weaker negotiating position.
One of the reasons that the success rate of for sale by owner (FSBO) listings is so low is that so many home sellers fail to price correctly. In fact, more than 80 per cent of FSBO properties end up being listed with an estate agent.
So what are the six most common mistakes and how do your avoid making them, even when selling through an estate agent?
1. Forgoing research
While it may be tempting to think your property is worth more than the one that just sold up the street, hitching your hopes to just one sale result is extremely risky business. When an agent conducts an appraisal, he or she takes into account all of the most recent comparable sales in the area using powerful property databases, market dynamics and intuition.
If you really want to make your own assessment, it’s possible to access the same data that agents use by buying a suburb or region report from one of the major housing records portals, which are easily found with an Internet search.
Don’t confuse such a report with the copious quantities of ‘home valuation reports’ and ‘free appraisals’ that turn up in your Google search results though.
You know the type… they’re often the paid adverts that appear at the top of the search results or in the advertising panels on the right side of your Internet browser. These are merely companies that attempt to intercept your need for an appraisal; they don’t offer a report, they just ask an agent to call you, provide their own report, and they charge the agent 20% of any future commission on the sale of your home. This can significantly impact on your ability to negotiate a suitable commission with said agent.
The most respected suburb reports are available from CoreLogic RP Data and Australian Property Monitors for approximately $30 per suburb. However, many agents offer the same reports for no charge.
2. Listing with the agent that indicates the highest appraisal price
You might intuitively feel or suspect that agents inflate their estimates and it’s true that in many cases, they do.
It’s partly human nature for an agent to want to show their enthusiasm to win your business by making their estimate more optimistic, shall we say? After all, agents quickly learn that they walk a tightrope where the balance between an accurate appraisal and not taking away your hope is crucial to winning business. Being the agent with the lowest estimate is rarely rewarded with a signed agency agreement.
The challenge is to find the agent who can discuss recent comparable sales and how these relate to your home with credibility. It’s one thing to pander to your pricing aspirations as a form of flattery, but that won’t convince a buyer to part with tens of thousands or indeed hundreds of thousands of dollars above market value when push comes to shove.
Signing with the most optimistic agent is the most costly mistake you can make.
3. Allowing emotions to overrule rational thinking
We all have well-meaning friends, family and neighbours who aim to please us. When you’re talking about selling, they all have an opinion to offer.
Let’s start with your neighbours. They hope you’ll achieve an above market price, so you’ll push up their value in the process. Frequently they’ll share stories about local agents, houses and the exaggerated prices achieved. However, they offer a little insight as to the circumstances that influenced negotiations and the outcome.
With family and friends, there’s no self-interest, but there’s usually even less local knowledge. It’s only natural that they want you to do well, but it’s important to apply a reality filter to the guidance they offer.
4. Pricing too high from the outset
The important thing to remember is that it’s not the seller or the agent who decides what a property is worth; it’s the buyer.
A buyer’s budget usually falls within a ten per cent range. This means your potential buyer has spent more time than anybody, including your agent, looking at everything available in that range. This gives buyers an uncanny ability to assess value with hyper-accuracy.
So if such a buyer inspects your home and decides it is overpriced, they either move straight on to the next property or they make you an offer that you immediately decline. As time passes and buyers observe your property being advertised, week after week, while others around it sell, they form the opinion that even inspecting would be a waste of their time.
The longer your home is listed, the more entrenched that view becomes, and the cycle self-perpetuates.
5. Overpricing because you are not in a hurry
While you may not be in a hurry to sell, buyers tend to not even make offers when a property is too overpriced. They make the assumption that they will simply be wasting their time, or at worst, that they’ll just cause offence. This takes away an ingredient vital to success – market feedback. Without a sense of where the market interest lies, how can you even adjust the price accordingly or enter negotiations in good faith?
The second impact is of course on your agent. Agents only get paid when you sell so an agent can work for months and earn nothing from an overpriced listing. Like all good business people, agents invest their time where they are most likely to achieve a result so you may not receive their full commitment.
Overpriced listings rarely sell within the exclusive agency period and unrealistic vendors have a habit of blaming their agent then switching to another. While this may not concern you, don’t forget that buyers are watching your property all the time. If you want to confirm an impression that your property is overpriced or in some way flawed, keep switching agents.
6. Chasing the market
The final stage in a property sale train wreck is signaled by incremental but inadequate price reductions. The downward spiral is now set in stone.
By now, the listing agent has extinguished all credibility locally, become exasperated with the owner’s blinkered intransigence, and is reduced to running increasingly desperate looking adverts in the hope that an out-of-towner will happen by and take the bait.
Such adverts are adorned with red sashes on a 45-degree angle saying ‘Price Reduction’, ‘Owner Says Sell’, or the humiliating and self-defeating ‘Owner Bought Elsewhere’. Expecting forgiveness from the marketplace at this stage is out of the question. Buyers simply sit back and wait for further price reductions, as it is now they who are ‘not in a hurry’.
All that is certain is that when they do make an offer, it will be below market value because they know you’ve been for sale for so long that you’ll almost certainly take any halfway decent offer, or less.
Getting it right
Nobody, least of all agents, wants to see a homeowner’s dreams dashed. That’s why it’s so very important not to try to outsmart market forces. Owners who try and ‘trick’ the market usually come off second best.
Working within the boundaries of realistic expectation provides the opportunity to properly execute a marketing campaign that will deliver full market value in a reasonable timeframe.
If you think one or even several agents have under-estimated your home’s likely value, remember that’s not in their commercial interests. If you’ve done your research, spoken to several agents and you’re still not satisfied, the best advice would be to pay for a formal valuation from a licensed property valuer.
Although this provides no guarantee that a buyer will be found for your home at that price, it does give you an independent viewpoint from somebody who isn’t competing to win your heart or your business.