How do you know what to advertise your home at when you come to sell and if it doesn’t sell, when should you re-look at your advertised price?
Trial and error and plenty of market experience has helped me formulate what I call the 2-2-7 pricing rule. Here’s how it goes….
If you are going to price your property in advertising and since it is the aim to achieve the highest possible price for your property, set the asking price for the initial marketing a little higher than we expect the market to bear (no more than 10% higher ideally). When a property first enters the market, momentum is generated, because all the qualified buyers (those in the price range who have been looking around for some time and are ready to buy) will discover the property for the first time. Competition peaks in the first 5 days to 10 days of marketing and buyers are most likely to make the highest offers for fear of losing out to someone else at this time.
If the initial marketing does not attract the desired offers, it may be necessary to consider varying the asking price. If the price remains the same for too long, the momentum of the marketing programme is likely to fall away, affecting the property’s profile and competitiveness.
It is important not to vary the asking price too early because it sends a signal to prospective buyers that the price is not genuine or that the vendor is perhaps too keen to negotiate.
Varying the asking price too late sends a signal that the seller is not aware of, or prepared to listen to, market forces – in other words, not genuine or realistic. Qualified buyers lose interest and the opportunities for receiving high offers diminish, along with the potential of achieving the best price at the end of the day.
Research with past satisfied sellers and a lot of trial and error over many years tells us that there is a simple two-point rule indicating the appropriate time to vary (reduce) the asking price.
This is known as the 2-2-7 Rule.
There are two conditions which must be met before this rule can be applied:
1. The property must be well-presented and free of any major legal or physical defects that would hinder the sale, and
2. The property must be professionally marketed to attract the attention of all current prospective buyers in the price range.
Provided these two conditions have been met, research indicates that the house will most likely sell in the first couple weeks. If it hasn’t sold and no offers have been received then a good time to alter an asking price is when there have been two advertisements and no response, or two open homes and no shows, or seven inspections and no offers. Which ever comes first.
It is usual for the first handful of buyers to come through your home to be some of the most motivated buyers in the market. Having been looking for a while, these buyers are also in the best position to have a feel for fair market value. Yes, the motivated buyers know the market value of your house much better than you do!
It is a common occurrence for a price change to happen too late and well after the listing has already become stale in the market place. This usually coincides with a change of agency also (owners usually blame the fact that there house hasn’t sold on the real estate agent and poor marketing but in most cases it is their own misconception of value that is hindering the sale).
If you are going to put a price on your home, then make sure you get accurate information in the first place so that you have a rational feel for what your home is worth in the market place.
The best start would be to get a list of recent comparable sales in your area. There are some great online resources available now including zoodle.co.nz (you can buy a report including recent sales online) and realestate.co.nz (having an awareness of the competition homes in your area that are on the market and what price expectations they have is good to give you a feel for where your home sits – remembering that buyers buy by comparing like with like to determine good value). A good real estate agent will be able to provide you with comparable sales info with his/her appraisal and talk about the value of your home in terms of these recent sales.
# Talk to a small sample of real estate sales people who are busy in your area, but do take what they say with a grain of salt. Salespeople may feel the need to overstate value to you if they know they are in competition for your house to sell with other agencies. There is a common strategy in real estate called buying the listing. In other words, a salesperson tells gives you an over inflated value for your home in order to secure the listing. This strategy usually includes signing you up for an exclusive agency for an extended period of time (more than a couple months). In this time they can bring your price expectations down as time passes with no sale.
The best way to get an accurate value indication from an agent is to let them know that if you decide to actively market your home, you will decide on the agent based on experience, personality, marketing plan, and the success and reputation of the salesperson and company, NOT on the salespersons opinion of the market value of your home. Don’t be swayed by mentions of optimistic values. The best price will be achieved not by the agent who thinks your house is worth M (market value) plus $20k, but by the agent who positively and professionally markets your home to the proper target market of buyers.
# Pay for a registered valuation.Another option is to pay for a registered valuation from an independent registered valuer. The important thing to note with registered valuations is that valuers are not infallible, and that it is an informed opinion of value only. There is no way of deciding on an exact dollar value of a house because there are emotional factors involved in a house that cannot be quantified easily like the dollar value of a view, or the last of the summer sun onto the deck, or the loss in value from having a power pylon in the back yard. Valuers usually get around this by making an allowance of 10% in the fine print of their valuations as a margin of error but that can mean a variance of $40k on a $400k house!
My general rule is that salespeople value optimistically and registered valuers value conservatively
The best definition of market value that I have found is this:
Market Value is the figure that a willing and informed purchaser will pay for a house and the willing and informed vendor will sell at. This definition assumes that both parties are rational, reasonable, and not under stress or duress in the sale process.
The real estate agent is there as a facilitator in this process and is doing his/her job well if you are getting good inquiry to advertising, regular viewings through your house, and is giving you honest feedback to help guide you in terms of value and presentation. Take note of what your agent says and try not to get defensive when negatives are mentioned about your home, this is the feedback from purchasers, don’t shoot the messenger. Your agent prefers to please you so any negatives mentioned by him/her have been carefully thought through and are worthy of taking note of to see if you can work around them or eliminate them. Remember that most feedback will naturally be negative because the buyers, when asked for their opinion, will be telling your agent why they have not bought your house. The positive feedback comes in the form of an offer!