The importance of correct list pricing for successful property sales -
As a real estate seller, one of the most critical decisions is determining the right list price for a property.
This is more important now than ever, because while the real estate industry mantra has always been "location, location, location", economic realities are increasingly forcing buyers to think "price, price, price" first, says High Street Auctions Director Greg Dart.
"Market-related listing is critical across all real estate segments from industrial to residential. It stands to reason that the higher the value of the asset, the more important it becomes to understand the pricing sweet spot if you want to liquidate funds for reinvestment.
"Correctly pricing your high-value fixed asset isn't only a financial decision but also a strategic one that can significantly impact the duration and outcome of a sale.
"In an ideal world those would be the only two determining factors in pricing property, but as with just about everything else, reality is more complicated because it involves people.
"About 70 years of research confirms what all property professionals know; emotion plays a massive role in real-estate investment decisions.
"This decade, the total global value of real estate climbed above $326 trillion, with a whopping 79% of that tied up in residential property assets.
"Robert J Shiller, Yale University Economics Professor, recipient of the 2013 Nobel Prize in Economics and New York Times bestselling author, says residential investments are difficult to compare with other financial investment assets because they have both investment and consumer characteristics.
"Put plainly, people aren't as rational about buying and selling homes as they are about other, less emotive, investments like comparing the performance of pension funds. Homes are aspirational life choices that merge financial and emotional expectations.
"The danger for sellers lies in emotional decision-making, with a narrative that reads: 'My home is special, and the right buyer will see it'. If that is the starting point, it's almost inevitable that sellers will price themselves out of the market before they're even out of the blocks."
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Pitfalls of Over-Pricing
Dart says in his experience, residential sellers overwhelmingly want to deliver their properties to people who'll love the space as much as they do.
"But setting a price point to attract only 'serious buyers' rather than a market-related price is thinking with your heart, not your head, and could scupper any chance of a sale."
Dart says sellers who over-price properties face:
Fewer Prospects: In today's competitive real estate market, buyers are well-informed and have access to extensive property data. Prospective buyers therefore know when properties are priced above market value and they don't like being taken for fools.
Lengthy Time on the Market: Online property portals allow buyers to quickly and efficiently compare local market stock. The longer a property sits unsold, the more potential buyers browsing for new listings will question its desirability or condition.
Discounting Negatives: If reality strikes when homes don't sell quickly and asking prices go down, owners risk creating an impression that they're desperate or lack confidence in their properties. Prospective buyers are likely to suspect there are any number of issues from structural to problem neighbours - perceptions that can be challenging to overcome even at more attractive prices.
Over-Exposure: Serious buyers frequently browse real estate websites for new listings, so a listing they've seen 20 times will be ignored. The longer an over-priced property remains on the market, the more stagnant it becomes. If your house has been on sale for ages without a nibble, take a step back and try to review the asking price from a financial and strategic perspective only. When you've revised the price, insist that your broker also completely revises the online listing with new visuals and a fresh property description that will bring previous browsers back to reconsider your sale.
Watch Auctions for True Market Pricing
Dart says property owners thinking of selling will find auction sale floors to be the most accurate barometer of market-driven real estate price points.
"Especially when the economy is tight, sellers (and buyers) rely even more on auctions because the mechanism of sale is crystal clear. Back-room deals can't happen; fair value is determined by one thing only - the market's appetite for the asset on the day.
"If owners want to price their properties to sell, professional real estate auctions will provide the market insight they need. Auctions are also much faster transactional platforms for liquidating fixed assets."
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Dart says real estate auctions offer an alternative sales model that can be highly advantageous. Here's why:
Transparency: Auctions are transparent events where buyers can see their competition and make informed decisions. This transparency fosters trust in the process, ensuring that buyers feel confident in their bidding and sellers can see clearly what the market is prepared to pay.
Market-Driven Pricing: In an auction, the price is determined by market demand. Bidding generates competition among potential buyers, driving the price up to what buyers are willing to pay on the day. Auctions are the only transactional method by which a property seller can realise value exceeding that which was initially set by their "reserve", or minimum sale price.
Quick Results: It takes an average of four weeks from signing the auction mandate to the hammer falling to close the sale. In comparison, according to FNB's Q2 Estate Agents Survey results in the bank's June's Property Barometer, the average time properties are on the market with traditional brokers has lengthened to 85 days from 75 in the first quarter.
Urgency and FOMO: Auctions create a sense of urgency and fear of missing out (FOMO) among potential buyers. They know they have a limited time to secure the property, which can lead to more motivated and competitive bids for sellers' assets.
Dart says however you choose to sell a property, setting the correct asking price at the outset is crucial.
"Knowledge is power in this process. By understanding the significance of accurate list pricing, seeking professional advice and exploring the various sales channels before going to market, sellers can make informed decisions to maximise their chances of fast, profitable sales."
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Additional information to consider:
Cobus Odendaal, CEO of Lew Geffen Sotheby's International Realty in Johannesburg and Randburg, shared (Jan. 2023): "There are 11 key factors that influence your home valuation".
"It's critical to price your home correctly right from the beginning because when buyers have as much choice as they currently do, they generally prioritise value for money and, if yours is over-priced, they'll probably opt for a similar home at a better price".
"Additionally, if a buyer does make an offer, and the appraised value comes in significantly lower than the agreed-upon selling price, the bank could decline to provide the buyer a mortgage," he said.
Odendaal said that it's understandable that sellers often find it difficult to be objective about the value of their properties because, unlike other investments, people have both a financial and emotional stake in their homes, especially if they have lived there for a long time and have upgraded the property.
However, at the end of the day, your home's value is based on what buyers in the current market are willing pay, and this market value is also contingent on numerous key factors that will be taken into consideration by agents and appraisers.
Click here to read the full article: Here are 11 key factors that influence your home valuation
Sellers must get real with their asking prices to sell in this market:
While there are always exceptional areas, the reality for the market is that with fewer buyers, a slower pace of sales and lower prices being offered, sellers must now be realistic with their asking prices, says Samuel Seeff, chairman of the Seeff Property Group.
After a buoyant few years' the market has slowed notably this year with some areas seeing a decline of up to 30%-40% in sales activity compared to the highs of 2021/2. Buying power has been affected by the higher than expected interest rate and while we are pleased that it has remained stable, it remains an impediment for the market for the foreseeable few months.
Two years ago, the market was flooded with buyers looking to take advantage of the low interest rate with offers flowing in, and prices climbing. Properties were selling within a week to a month of listing in many areas and the good times were rolling for sellers.
While the market started its downward curve towards normalisation by early 2022, the reality is that the higher-than-expected interest rate has put tremendous downward pressure on sales volumes and offers. Seeff says it was a disappointing winter as the pace of sales slowed notably.
We are now decidedly in a buyer's market characterised by fewer buyers and more stock coming onto the market in most areas. Buyers are taking longer to put pen to paper, and since there is little competition among buyers, they are no longer willing to pay those high prices, and in most instances, offers are coming in below the asking prices.
Price growth trends reflect the downward pressure on asking prices. The FNB House Price Index has declined from a high of 4.2% in 2021 and 3.5% in 2022 to just 0.8% in August. This year's growth has slowed even further from 2.8% in January to a negligible 0.8% in August.
Seeff says that about two thirds of all properties now spend three months or longer on the market compared to just about one third a year ago. The average purchase price is also under pressure and buyers are now spending less on homes. Seeff says according to mortgage originators, ooba, home loan applications are down by about 30% from the highs of 2021 and 25% since last year.
The upside for the market is that while we are now largely back to the 2019 pre-pandemic volumes despite the higher interest rate, the bank lending conditions are significantly better. Home loan approval rates for example have remained largely unchanged with over 80% of applications being approved.
Deposit requirements are also still below 10% on average which is still the lowest in over a decade, says Seeff. Additionally, 100% loans are still available for first-time buyers and here too, Seeff's mortgage originators report approval rates of over 80%.
As we head to the busier period for the market, we expect an upsurge in buyer activity. Similarly, many sellers will be looking to get their property sold as quickly as possible so that they too can move before or by the new year.
Sellers will, however, need to be realistic with their asking prices as Seeff says there are definitely higher stock levels in many areas. If your price is out of step, you will need to drop your price, especially if you are selling in some of the more challenging areas such as Gauteng.
23 Oct 2023
Author Property24