Even if you are the first born or second wife, you should read this!
Experienced real estate professionals are known to say,
“In order to succeed in life, you want to be either:
- The First Born
- The Second Wife, or
- The Third Agent “to list the property”
Joking aside, there is an element of truth in this statement, just ask any agent that has acquired a listing once the vendor has been educated by his predecessors.
But We Think Our Property is Worth More!
Whether we like to admit it or not, when a typical vendor begins to interview potential real estate agents, a host of emotions come into play, particularly with regard to the advertised price.
Generally speaking, vendors feel that they are more in control if their property is priced at the higher end of the scale. Often comparing their asset to others on the market they perceive to be relatively smaller or in a less salubrious area to justify themselves.
The common mistake is, that the house down the road may well be less attractive or offer less features and benefits, but if it has not sold, then the message is clear buyers are not seeing the value, even at that level.
Poorly informed vendors often decide to place their listing with the agent who suggests, or agrees, to the highest list price.
As far as selling the property is concerned this is the worst mistake a vendor can make and, having been made, it is a struggle to reverse the damage caused.
Establishing the selling price!
The reality is that it doesn’t really matter what value a vendor believes their property is worth, nor is the agent’s un-researched opinion going to have a lot of bearing on where the property sites either until, there is a serious offer on the table. The eventual buyer who is prepared to make a genuine offer holds all the cards, of course the final selling price will probably be more that the initial offer, but that’s why a real estate agent is engaged.
Assessing a price on real estate is part art and part science. It involves comparing similar properties, making adjustments for the differences such as suburb, aspect and features. Tracking market activity, identifying market trends and taking stock of available inventory is likewise important.
Ultimately the agent should be in a position to advise on a range of values; an educated opinion, if you like. This is not dissimilar to the exercise a Registered Valuer adopts, after carrying out a replacement evaluation. A recent sale of a similar property will give a professional an indication of the probable selling price of similar properties.
No two appraisals are ever exactly the same; however, they are usually quite close particularly if the agents have made sales recently.
In a buyer’s market the secret to selling is to pitch the property at a price that will entice buyers to inspect but not give them much room to negotiate. The first step to a sale is the inspection.
Is it too Low?
Property will sell at a price a ready willing and able buyer is willing to pay and a seller is willing to accept. If real estate is priced too low, priced under the competition, the seller should receive a higher than average inspection rate plus multiple offers which, if handled correctly, will drive up the price to market value. So there is little danger in pricing a property too low. The danger lies in pricing a piece of real estate too high, which will result in very few inspections.
But it owes me!
We are able to convince ourselves of anything, particularly if we have to justify our actions. The fact is if a property has been over capitalised then it has been made more attractive when compared to a similar property, nothing more. This does not increase the value expedientially, a three bed, two bed bungalow in a row of similar properties will be attributed much the same value as the one two doors up. Where there will be a benefit is in perceived value, this will be the reason that one bungalow sells over another.
I’ll advertise my property at a higher price!
The thinking behind this unbelievable statement is “well I’ll have to negotiate anyway”. The facts are somewhat different, the chances of an inspection which leads to an offer are diminished to such an extent that in all honesty you’re wasting your time and that of your agents, unless this is about egos and not selling property.
Independent studies by both national and international franchises accept this simple table as the best representation of trends in a vendors market.
Obviously, in a buyer’s market the figures are less favourable. Moreover, many buyers are too polite to submit a seemingly low offer (in comparison to the inflated asking price), since they do not wish to offend the vendor.
If the real aim is to sell your property for a fair price then the asking price should be pitched at a level that will excite potential buyers and have them clamouring to inspect your property. If after 14 – 28 days you have not had any viewings then you should discuss the advertising and marketing strategy with your agent. After every viewing your agent should be providing you with market feedback. It may be unpleasant news, which you may not want to hear none the less that knowledge will give you the ability to fix any problems. If you are unable to remedy the situation then the best advise your agent can give is to withdraw the property from the market and wait for the market to change enough to meet your expectation, unless time is a deciding factor.
Sometimes it is better to accept a perceived loss in order to be able to move on. Remember, if you are selling in a buyer’s market then you should be looking to be purchasing in one.
The Third Agent !
A typical example of how to shoot yourself in the foot!
The vendor instructs the first agent, who agrees with the vendors dream price; in other words, the agent buys the listing. There are many reasons why agents do this, none of which are related to selling the property, but for a short time both the vendor and the agent feel good about themselves. They will talk up the property, confuse the market and help other vendors to sell their realistically priced property. After an agreed period, or until one of the party becomes frustrated with the other, the listing expires.
Now the other foot
The next agent, usually recommended by a well meaning “friend”, points out that if there were no written offers while the last agent had the listing then there is something seriously wrong. In real estate terms, the agent is telling the vendor to sort out the advertising, the price or both. In this case the vendor has either spent their advertising budget with the first agent, or believes it’s the agent’s job to pay for advertising. The new agent believes the property is overpriced but is reluctant to say anything, not wanting to upset the apple cart, but is reluctant to spend money on an overpriced property. In reality the vendor is trying to sell a secret. The good news is that the second agent again not wanting to upset anyone arranges a few inspections mainly because the agent want to at least be seen to be active. However, as the friend of a friend, isn’t prepared to deliver the cold hard facts, never asks the key questions “So you like this home then…………..what would you feel comfortable offering? So it’s a wasted exercise.
Of course, as is often the case any business built upon anything other than a professional relationship has its fair share of rocky moments. The outcome is that over the duration of the listing the vendors are worn down and eventually agree to a price adjustment, often where it should have been pitched 12 months earlier. The difficulty now is that buyers are very well educated, have seen the property on the market for the past 12 months, the advertising campaign is stale and anyone in the market for such a property will automatically believe that there is something wrong with it, otherwise it would have sold long ago.
Still no takers; a few tyre kickers, but no serious buyers, and in a buyer’s market very few emotional buyers.
When, just bring it to an end, sounds pretty good!
The vendor has grown weary and is exhausted. A year has passed, houses in the same street have sold, and talk on the TV is of property prices continuing to fall. In most cases the mortgage has to be paid, some would say that’s dead money in a buyer’s market. Worst of all the vendors life has been on hold for a year and the tensions at home has been unbearable at times. Together the vendor and the recently instructed third agent price the property in line with recent sales based on research. Typically this agent will be a young man in his early twenties with a year or more experience, who imparts his enthusiasm with gusto, or a middle aged lady with years of experience with whom buyers feel comfortable and in good hands.
Great news, the property immediately sells for cash. The sad part is that comparable sales in the neighborhood fully justified a price of a little more 6 months earlier, but the home had been on the market for too long at the wrong price, and now the market has softened.
The question is how much has this cost the vendor? In financial terms, certainly in a buyer’s market, the mortgage payments plus any fall in property prices. There is another problem here; for 12 months prior to the sale the vendor of the overpriced house has been projecting a message to other property owners in the area, who also wish to sell, that prices are higher than in reality, desperation to sell is rife which works in the buyer favour. Even in a buoyant market, a stale property under these conditions will sell for approximately 10-15% under its real value.
Then there is the hassle factor of trying to keep a home spotless during viewings, for which the vendor will never receive compensation. A poorly presented home affects the value a buyer ultimately chooses to pay, because the home is not a fresh listing anymore; it’s now a stale, dated, market-worn property that was overpriced for too long. Don’t let it happen to you. Don’t be that vendor of a stale or expired listing.