PRICING YOUR HOME TO SELL!
Everyone notices a home that has been on the market a long time. The garden is not quite as neat as it was when the home first came on the market, the “For Sale” sign has seen better days, and the owner’s bloodshot eyes beg for an end to the endless open homes, private inspections and marketing costs!
This is the sad reality of a home that has been overpriced. However, the good news is that with careful consideration to accurate pricing and an honest relationship with your agent it can all be avoided!
The following is a guide on how to avoid overpricing, how to identify it when on the market and how to correctly adjust your price if you have not sold.
Why does overpricing happen in the first place?
When a seller decides to put their home on the market, the first thing they do is invite real estate agents to their home. They hope to get an idea of the value of their home and decide on which agent they will select when selling. The challenge with the second goal is that most agents offer a seemingly identical service. Therefore, the decision often comes down to the price the agent suggests for the home. This is a problem.
The sellers who find themselves making this price-based decision inadvertently encourage the agents to inflate their opinion of price in order to win the business. This leads to a home that is massively overpriced and an unnecessarily stressful campaign.
To avoid this situation, rather than selecting the “the agent that offered us more”, select your agent based on how they can negotiate the buyer’s highest price. Ask questions like “Which method of sale gives the best results? Why?” and “How will you discover what the buyer’s highest price is?”. When you get into the nuts and bolts of how they negotiate, you will find many differences.
That being said, the agent will still need to give you an opinion of price. The next section explains how a competent agent achieves this.
Methods of appraisal.
When agents begin a discussion about a potential sales price, they will generally use one method to justify their opinion – referring to another comparable sale. Sometimes the sale they refer to may look the same but be zoned differently or even sold so long ago it was a totally different market! This method, on its own, can be hazardous and each sale should be considered as to how relevant it really is.
Fortunately, there are many other methods that can be used, and the best agents consider more that one method when giving their opinion. This section will not go into a detailed explanation of each however, below is a few of the methods that agents can use to determine their estimate of price.
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Land value plus replacement cost of improvements.
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Comparable bracketing (Sales results).
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Current competition’s pricing.
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Purchase price +/- change in market + improvements made to home.
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Value based on rental return % for area.
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Pricefinder/RP data auto valuation.
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Rates notice valuation.
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$ per square meter.
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Development feasibility.
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Previous written offers.
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Previous on the market days to email enquiry ratio (Consider pricing method used).
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Registered valuer’s opinion.
All of these methods have their place, depending on the type of property being sold. Used together they are like lines being drawn on a map when you are lost.
Be keen to ensure the agent has considered some of these other methods and you are less likely to fall into the trap of overpricing.
When my home is on the market, how do I tell if it’s overpriced?
So, you have prepared your home for sale, engaged an agent, set a price and you are now finally on the market BUT you haven’t sold. Perhaps the price analysis was wrong, perhaps the market has moved, but what do you do now and how do you know for sure that it’s overpriced?
The first and most important step is to make sure you have a great relationship with your agent and crucially a regular (ideally weekly) catch-up arranged to discuss progress.
This meeting should be used as an opportunity to discuss the progress of the campaign as a whole, view the results of any marketing efforts and most importantly discuss any feedback given by purchasers that have made contact with the agent and/or viewed the home.
The agent should feel comfortable to be brutally honest about what the buyers have said. They should tell you if there were any suggested changes to the home and lastly, what price bracket they feel the home should be in.
The agent should also come prepared with a report from www.realestate.com.au. This report gives you a great idea as to how competitive the price of your property is.
As a general rule, anything less that one enquiry per day (for a residential suburban sale) indicates a price that is too high. Two to three enquiries per day is the ideal amount. Any more than that and the agent will be forced to open the home for inspection.
These numbers are general in nature and do vary depending on the type of property being offered. E.g. a large rural property will generally have less buyers through simply because there are not as many people wanting such a property. In this case one enquiry per day average is an excellent ratio.
How much should I reduce the price by if it is overpriced?
The decision as to how much you should reduce by needs to be made with the consideration of these two factors:
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Your goals for the sale – can you afford to sell at a reduced price?
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The feedback from the buyers.
On the topic of your goals, remember that if the market has dropped in your suburb then it has most likely dropped in the suburb you intend to buy in next.
With relation to feedback, each buyer should be able to give a broad opinion of what they think the home is worth and what homes, currently on the market, they feel are competitive with yours.
Sometimes the price needs to be reduced 5%, sometimes 10%. It is about getting it to the point where the property is competitive. You will know when you have it right as, all of a sudden, you have the desired two to three enquiries per day.