The property market might be improving but it remains largely favourable for buyers, with sellers needing to compete for the limited pool of buyers in a market that is generally still overstocked.
While pricing is important in any market, it is especially so in this one, says Samuel Seeff, chairman of the Seeff Property Group.
The sale of any property involves competing interests, with sellers wanting the highest price possible and buyers wanting to pay the lowest. And since the listing process starts with the asking price, sellers often think that setting the price at the highest possible level will get them better offers closer to the desired price.
However, in reality, Seeff says there is no evidence which shows a higher asking price will result in a higher selling price. In fact, it can have the opposite effect, putting off buyers from the outset.
There is a psychology to pricing and the consumer’s mindset about price can make or break a sale.
A New York Times report states that “in a market where buyers and sellers circle one another warily, each certain that he or she is being taken advantage of, no matter what the conclusion of a deal, the asking price of a property is rarely a straightforward reflection of comparable values”.
Seeff says the report also states that sellers often start at a point that equates to “wishful thinking”, and even when the seller and agent finally reach a point of consensus, it is often still slightly above the ideal price level. Buyers, on the other hand, simply love a bargain and will always look to deconstruct the price, not just in terms of how it represents fair value, but they will actively look for vulnerabilities, he says.
“In this climate, the role of an experienced local area agent becomes pivotal as they know the area, what is on the market and what has sold and for how much.”
Setting the price at the right level can mean the difference between getting a quick offer and drawing little interest which might result in having to drop your price to get an offer.
Seeff says there are many pricing myths which can stand in the way of a successful sale.
He explains the six most common pricing misconceptions:
A high price leaves room to negotiate
This is a weak strategy which will have the opposite effect. Today’s buyers are informed and aware of market conditions and prices.
They will simply overlook an overpriced property in favour of those which are correctly priced. This could mean that you may have to make price cuts which in turn could attract bargain hunters rather than serious offers.
The news says the market and prices are up
With so much written about the market, often by people who are not local experts, it is easy for sellers to get caught up in the hype of rising prices. Many sellers also look at the property portals, which are generally overpriced. It is best to trust your agent.
Renovations and improvements will get a higher price
Renovations do not always equal a higher price. While some improvement to an older property might well be advisable, you should take care not to overspend and over capitalise. Always consult a local agent and do a “cost versus value” analysis before embarking on renovations.
A quick offer means the agent priced too low
This is not the case. The objective of selling is to get a good offer as quickly as possible. Receiving an offer soon after listing means that the property is on the market at the right price to attract buyer interest.
If you appoint a credible agent, they will not risk their reputation on giving you incorrect pricing advice.
Let’s wait for a better offer
Research has shown that the first offer is often the best as it is based on the value that buyers attach to the property.
Sellers tend to be sceptical at first, thinking that the buyer is trying to make a quick bargain buy. If it is a fair offer, you should always consider it.
There are no guarantees that another offer will come along, especially in this market.
Reducing the price will entice bargain hunters
While no seller or agent would want to be in this position, there could come a time when it seems that the market is just not reacting to a particular asking price. In such instance, if you need to, or are motivated to sell, your agent may advise a price drop.
Remember, time is money and the longer your property is on the market, the more it costs in bond repayments, utility costs and so on. Lowering the price could even result in a better offer.