The Importance Of Pricing Your Property Correctly

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 – i.e. maximizing your return. 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 provide 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.

Reasons for overpricing :

Seller’s reasons for overpricing

• To build bargaining room into the marketing price
• Need money for a bigger home in a better neighbourhood
• Need money for transfer fees, bond costs removal fees or alterations
• Need to recoup money spend on renovating the property

Buyer’s reaction to 4 reasons above:

• Educated buyers recognize 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
• Overcapitalization is not a good investment

Agent’s reasons for accepting an overpriced mandate:

• Secure the mandate & blow away the competing estate agencies to dominate the market
• Free advertising for the agent – especially if it is on a busy road
• Finds buyers for correctly price property through boards, open houses and media advertisements of overpriced property
• Hopes for a price reduction close to market value and possible sale

Setting the price:

In establishing a marketing price 3 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• Comparative withdrawn property in the area (what buyers are not prepare to pay)

Avoiding selling your property under its real value speaks for itself. Making the same mistake when it comes to overpricing can be as a costly 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 then any seller who focuses more on his or her own needs or financial obligations in terms of his or her next property or life style choice. Buyers learn the market value of properties in your area by comparing your property to all the others that they have seen. If your price is too high they will simply dismiss it or if it is not priced correctly (that is offers them less value than other competing properties), they will rank it as one of the lower choices 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 has not been any offers after three weeks. Sellers should be aware not to 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.

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 will tend to attract the most buyers within the first 4 weeks of the marketing program. A property which is priced +-10% above its real value can extend the marketing time beyond 2 to 3 months, whilst a property which is priced +- 15% above market value can prolong the marketing period up to 6 months. Properties which are 20% or more above market value can remain in the market for up to a year or more. Such properties unfortunately become a measure stick to their owner’s detriment – i.e. they act as a confirmation of comparative real value that potential buyers will find in the correctly priced properties. The stigma attach to a property that have been for too long a period in the market can also be relayed directly into the type of offers the seller will receive. Experience show such offers can be below the property’s market value, as the buyer will test the level of urgency or despair of the seller.

Estate Agent’s Role in Pricing:

Correct price counseling is the foundation of all successful sales and the estate agent’s most valuable service. The 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 need 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 are 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 avoids the temptation for competing agents to undercut on 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 common practice for sellers to favor an agent who gives them the highest valuation for their property. This is not always the most accurate valuation – especially if the valuation is done by a dependent agent who need in terms of her or his employment contract to secure a fix amount of sole mandates in a specific period. Sellers will then be disappointed when the market does not react positively to the unusually high price and may find that their home stays on the market for a long time, with the price dropping continually. It is of the utmost importance to select an agent based on honesty, ethics, competence, experience and previous sales results in your area – NOT on pie-in-the-sky price promises.

It is also vital for your selected agent to continuously measure 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 - should buyer interest lack and no offers realize within the first 3 weeks.