Determining How To Price Your Property
By Craig Lowe
One of the most important things to get right when you are marketing your home is the price. With the changing market conditions, this has become even more apparent.
However I am not going to tell you to put the lowest price you can stomach on your advertisement in the hope of getting your home sold quickly. Nor am I going to claim the best option is to start with a high asking price, with the idea that you can always negotiate downwards. Neither of these approaches acknowledges the basic reality that selling a home is very different from selling a toaster.
If you are selling a toaster there are hundreds of competing toasters that do basically the same job with the same features. So it is very easy to determine the price that the market is likely to pay for a toaster. Conversely buyer’s decisions are simple because they can choose between several different brands on the spot and make direct price comparisons on price versus function.
Determining the market value of a home is a much murkier concept. Compared to other commodities, and consumer goods, each home is distinctly unique with huge differences across all aspects and features. The variables are such that it is usually impossible to find true comparisons. Also, human emotion plays an enormous role in property transactions. Even two people who want to buy the same home, with approximately the same past experiences and information, will still have different ideas about it is worth.
The truth is that a home does not have a determinable value until it is sold. It actually has many possible values, all of which are indeterminable in advance but can be influenced by the sales process. Only once a transaction has been completed between a willing buyer and seller is the “market value” determined.
“But property transactions involve a process of negotiation” I hear you say. “Why can’t we just put a high price on the property and let buyers offer what they wish?”
The problem is the change in the buyer’s psychology when they have a price in mind. Think of it from your own perspective: If I show you an incredible cliff-top mansion, but don’t tell you how much it costs, the most likely words uttered will be “WOW”. If I show you the same property but beforehand I tell you it cost $25,000,000 to build, your reaction is more likely to be “it cost HOW MUCH?, FOR THIS?”. This is an extreme example but the point is we all look at things in a different light when comparing something to its price. How many times have you seen someone gazing longingly at an amazing evening dress only to screw up their face in disgust when they see the price tag.
The secret is to let buyers become emotionally attached to the home without a pre-conceived price in mind. Your salesperson should tactfully avoid the pricing issue as long as possible. Then use solid data of recent sales and good negotiating to ensure the buyer pays as much as possible – once the buyer is committed to making an offer. That way you do not put them off at the start with a price. A truism about things we fall in love with, like property, is that we usually end up paying more for them than we first thought we would.
Paradoxically it is critical that buyers can vaguely determine that the property is within the “vicinity” of their budget from the advertising – otherwise you will alienate them. We like to use the Ratable Value (RV) as long as it is low enough to stimulate interest. This works brilliantly. It is also a piece of information that is publicly accessible anyway. Don’t hide it - use it to your advantage. It is even preferable to have a lower GV to a properties likely value as this tends to stimulate more inquiry so don’t make the mistake of having your RV contested with council.
Advertising your RV is not the same as having an asking price. It is simply a factual statement for informational purposes about what the RV is. Buyers understand this. And it becomes second nature explaining to the (very rare) uninformed buyer that the RV is not a reflection of the owner’s expectations.
So the best option is not to have an asking price. Let the buyers put their best offer forward, hopefully in a competitive situation against other buyers. This way you will determine the true market value without shooting yourself in the foot by under pricing or putting people off with a high price. It is the skill of the salesperson involved to manage this process well and this is where the difference between experience and inexperience can cost you tens of thousands of dollars.
If you would like further information – including analytical evidence that Buyer Budget Over and Buyer Enquiry Over methods of pricing do NOT achieve a premium in a down market, please contact me on 021-764-647.