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Overpricing has been one of the biggest banes plaguing the property market
over the last few months and virtually all experts have cautioned sellers
against it.
Here we will attempt to highlight the importance of correct pricing,
the reasons for and expected consequences of overpricing, the steps for
setting the price and the role of the agent in the pricing process.
1. Why is pricing important?
This is probably the most important factor in a successful sale. Pricing
your home correctly is essential in achieving the highest selling price
in the shortest period of time. Your property has to be priced at a level
that is competitive with other similar properties on the market, creating
an impression of good value.
Correct pricing increases advertising response, stimulates buyer interest,
compensates for property shortfalls and provides the seller with a negotiating
advantage. By overpricing your property, you will attract buyers in a
higher price range with higher expectations, leaving you with no realistic
chance of selling your property.
2. Reasons for overpricing
Sellers' reasons for overpricing:
- To build bargaining room into the marketing price
- More money for a bigger home in a better neighbourhood
- More money for transfer fees, bond costs removal fees or alterations
- Need to recoup money spent on improving the property
Buyers' reaction to four reasons above:
- Educated buyers recognise a fair price and will be more likely to pay
it
- Your destination property has no effect on your property’s value
- Your need for money has no effect on your property’s value
- Overcapitalisation is not a good investment
Agents' reasons for accepting an overpriced mandate:
- Secure the mandate and deter the competing estate agencies
- Free advertising for the agent – especially if it is on a busy
road
- Finds buyers for correctly price properties through boards, open houses
and media advertisements of overpriced property
- Hopes for a timeous price reduction close to market value and only then
for a possible sale
3. Setting the price
In establishing a marketing price, three sets of prices need to be investigated:
- Comparative or similar property for sale in the area (what your property
will compete with)
- Comparative property recently sold in the area (what buyers are willing
to pay in recent times)
- Comparative withdrawn property in the area (what buyers are not prepare
to pay)
Selling your property under its real value speaks for itself. Making
the same mistake when it comes to overpricing can be as costly a mistake
because the selling price of a property in the market tends to decline
as time passes.
Buyers in general do a much more thorough comparative market analysis
of the properties in the area than any seller who focuses more on his
or her own needs or financial obligations in terms of his or her next
property or lifestyle choice. Buyers establish the market value of properties
in an area by comparing the property to all the others they have seen.
If the price is too high, they will simply ignore the property or if it
is not priced correctly (that it offers them less value than other properties),
they will rank it lower on their “short list”.
If the seller chooses not to put their home on the market at the suggested
marketing price, but rather at the higher price indicated by the agent,
the agent will usually comply. It is, however, advisable to reduce the
price if there have not been any offers after three weeks. Sellers should
not compare the price of their home to the listed prices of other homes
in the area which may have sold – but rather to the sold prices achieved.
4. Wrong pricing – expected results:
There is a direct correlation between the marketing time span and the
price of a property – as a correctly priced property tends to attract
the most buyers within the first four weeks of the marketing programme.
A property which is priced at about 10% above its real value can extend
the marketing time beyond two to three months, whilst a property which
is priced at about 15% above the market value can prolong the marketing
period up to six months.
Properties that are 20% or more above market value remain in the market
for up to a year or more. Such properties unfortunately become a measure
stick, i.e. they act as a confirmation of the comparative real value that
potential buyers will find in the correctly priced properties. The stigma
attached to a property that has been on the market for too long a period
also has a direct bearing on the type of offers the seller will receive.
Experience shows such offers can be below the property’s market value,
as the buyer will test the level of urgency or despair of the seller.
5. Estate agent’s role in pricing:
Correct price counselling is the foundation of all successful sales and
the estate agent’s most valuable service. An agent who has not researched
the market and cannot justify his valuations by comparing them with other
similar sales, is damaging the seller’s changes of success. Sellers
have to be provided with the statistics on which every valuation is based.
In an upswing or downswing market, a good estate agent needs to take care
in explaining to the sellers exactly what formula - i.e. rise or fall
in buyer activity, he or she has worked into the price of the property.
Monitoring all recent sales activities is therefore crucial.
Awarding a sole mandate to a reputable agent can help a seller achieve
the highest possible price for his or her home, as it prevents the temptation
for competing agents to decrease the price for the sake of closing the
sale — in other words, it is important to let buyers compete for
the sale and not the agents.
It is also vital for your selected agent to continuously measure the
market response to the property, monitor market trends in the area and
to communicate with you as the seller to make speedy adjustments to the
price.
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