5 Prices to Consider When Selling
Pricing a home to sell is ultimately a judgment call between your real estate agent and you. However, I would recommend that you take a methodical, scientific approach and consider the following five prices:
- Desired price;
- X-ValueTM;
- Acceptable price;
- Listing price;
- Right price.
Think of these five prices on a vertical axis. They are relative to each other and some could even equal each other. The greater the distance between each relative price, the more difficult it will be to reconcile the difference and, if you can’t, you should be prepared to explain and justify the gap, either in your own mind or in that of the buyer and his agent.
Desired Price
This is your perfect world price. This is what you want, not what the market is going to give you. It’s what you think your home is worth.
Maybe you come to this price instinctively, based on the condition or location of your home. Maybe you have derived it from a return-on-investment calculation. Maybe you want to beat your next door neighbor who recently sold his home.
Whatever the reason, it doesn’t matter if your desired price is based on reality. It’s merely a starting point for you to have a pricing discussion with your agent to see what he or she thinks you can get. It’s also a test to evaluate your agent. If your agent acquiesces to your desired price, find an agent who’ll tell you what you don’t want to hear and be brutally honest with you.
X-Value
Now that you have identified your desired price, it is time to apply some science and cold, hard logic.
In real estate, we price a home by comparing it with similar properties that have recently transacted. X-Value provides you a mathematical baseline in which to arrive at the listing price.
X-Value is a computer-generated estimate of the value of your home. In micro-seconds, it searches your project and neighborhood for homes that recently transacted and selects those that are similar in terms of property type, floor area, build-in area, floor level, and tenure.
Next, X-Value calculates a single value based on a best practices valuation methodology. Ask your agent for the details on the comparables that were used to price your home.
X-Value takes into account only measurable variables. It does not take into consideration the condition of your home or its view, as both require judgment that is subjective and varies from one person to another. As such, it is up to you to take your desired price and X-Value and work with your agent to come up with an acceptable price.
Acceptable Price
This is where you get down to business. The acceptable price is the price that you would expect a willing buyer to pay. To arrive at your acceptable price, you want to take into consideration the following:
- Competition;
- Unique selling points;
- Market expectations.
Competition is bad for sellers. In general, if buyers have many alternatives to your home, they are not going to pay a premium above X-Value. In fact, in a downward market, they will seek to pay below X-Value. In contrast, if you have no competition and your home has some strong unique selling points, you should be able to sell above X-Value.
If you want to sell your home above X-Value, you must be able to differentiate your home from the competition. There might be something about your home’s condition, location, interior design or view that sets it apart. If you have, flaunt it.
However, your home’s unique selling points must really be unique. Being walking distance to an MRT does not count as a unique selling point if five other listings can claim the same thing. (Still put this fact in your listing but come up with something else for the unique selling point.) Furthermore, what might be a selling point to you – like your neon pink living room walls – might not resonate with buyers. So, please be realistic about what counts as a good differentiator.
In general, during a down market like we have today, buyers are going to be skeptical about any home priced above X-Value. That is the prevailing market expectation, and there is nothing you can do about it. If you price above X-Value, buyers will be sure to ask you why? So as you discuss the acceptable price with your agent, review SRX Property’s Home Report closely. It will help you understand the competition, identify unique selling points, and make allowances for the market. You can’t sell your home in a void, so you must be realistic. Your desired price is a good place to start a discussion with your agent, but there is no escaping the hard science of X-Value and the harsh reality of competition and market expectations.
Listing Price
Once you have your acceptable price, it’s time to set your listing price. The latter is strictly a marketing and negotiating consideration.
If your agent is a good marketer and negotiator, then by all means list your home above the acceptable price. Sometimes an agent has access to a group of buyers that are not overly price sensitive so it is possible to sell above the acceptable price.
Also, a good negotiator can often earn a client a premium over the acceptable price. However, some negotiators prefer to list at the acceptable price and stand firm, confident in their pricing. It all depends on the style of the negotiator.
Right Price
Until now, it has been you and your agent. You discussed your dreams and wishes. You used X-Value, Home Report, and the judgment of you and your agent to arrive at an acceptable price and then a listing price.
The right price is the agreed upon price between a willing buyer and a willing seller. Arriving at the right price requires some serious negotiation and gamesmanship.
Before I can describe the game of doing a deal at the right price, I must lay the ground work for how a buyer and his or her agent prices a home to buy. For this, please read next week’s column in Saturday’s Classified or check Ask Home Prof on Friday, 9 October.
(By the way, the principles in this column apply to rentals, landlords, their agents, and rental X-Value.)
Source: SRX (27 Sep 2015)