The Perils of Overpricing
Everyone notices a home that's been on the market too long. The garden isn't as neat, the "For Sale" sign looks worn, and behind the scenes the owner’s exhausted eyes tell a story of endless open homes, private inspections, and mounting marketing costs. This is often the reality of an overpriced home. However, with some time taken to accurately price your home and an honest relationship with your agent, this situation can be avoided.
Why Does Overpricing Happen?
When sellers decide to put their home on the market, they often invite real estate agents to give them an idea of the home’s value and decide on an agent. Since most agents offer similar services, the decision frequently boils down to the price the agent suggests. This leads to agents inflating their price estimates to win business, resulting in overpriced homes and stressful sales campaigns. More on that here.
Choosing the Right Agent
To avoid this, choose your agent based on their negotiation skills rather than the price they suggest. Ask questions like, "Which method of sale gives the best results and why?" and "How will you discover the buyer’s highest price?" Understanding their negotiation tactics can reveal significant differences between agents.
Methods of Appraisal
A competent agent uses multiple methods to determine a home's value, not just comparable sales. Here are some methods agents can use:
- Land value plus replacement cost of improvements
- Comparable bracketing of sales results
- Current competition’s pricing
- Purchase price +/- market changes + home improvements
- Value based on rental return percentage for the area
- Automated valuations (Pricefinder/RP data)
- Rates notice valuation
- Price per square meter averages
- Development feasibility
- Previous written offers
- Market days to email enquiry ratio of a previous campaign
- Registered Valuer’s opinion
Setting an Asking Price
Finally, with the use of accurately reported clearance rates from a website like sqmresearch.com.au, the sentiment of the market can be assessed. This will guide your agent as to whether or not the asking price should be above, at, or below the price indicated by the historical data.
Key point: You should always price your home for the market you are heading towards as opposed to the one you have been in.
These methods, used together, provide a more accurate appraisal and help avoid overpricing.*
Identifying Overpricing When on the Market
If your home is on the market but hasn’t sold, it might be overpriced. Ensure you have a strong relationship with your agent and hold regular (ideally weekly) catch-ups to discuss progress. These meetings should review marketing efforts, buyer feedback, and suggested price adjustments.
An agent should provide a report from realestate.com.au to gauge the competitiveness of your price. Generally, less than one enquiry per day for a suburban sale indicates a price that’s too high, while two to three enquiries per day is ideal.
Adjusting the Price
If your home is overpriced, deciding on how much to reduce the price involves considering your goals and buyer feedback.
1. Your Goals: Can you afford to sell at a reduced price? Keep in mind that if the market has dropped in your suburb, it likely has in the suburb you intend to buy in next.
2. Buyer Feedback: Buyers can provide opinions on what they think the home is worth and what comparable homes are priced at.
Price reductions can vary, sometimes needing a 5% to 10% cut to become competitive. You’ll know the price is right when you receive the desired one to three enquiries per day and you are SOLD!
*Legal Note – It is illegal to deliberately underquote the price of your property. More on that here.
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