You’ve held your investment for some time now and have decided to put it on the market for sale.
What exactly influences the ‘sale-price’ of your property?
Ask your typical agent and they’ll tell you they’re the number one influence on the sales price of your home.
It’s just not that simple. There’s more to it than that.
Sure, your agent will have an influence on the price. Certainly NOT the only influence though. And frankly they’re NOT always a good influence either.
There are actually ‘5 THINGS THAT INFLUENCE PRICE’.
- The property seller’s motivation
- The property buyer’s motivation
- The market on the day of an offer being submitted
- The quality of the marketing of the property
- The agent’s ability to negotiate on your behalf
These five things all have a big role to play in the final outcome. So they’re all equally important. And because each of them can vary, in some cases quite dramatically, so can the sales price.
That’s why the old adage applies…
“SIMILAR PROPERTIES OFTEN DON’T SELL FOR SIMILAR PRICES”
What that means is, you can have two very similar properties located in similar streets, or even the same street and because just one of the five price influencers was different for one of the properties, so was the sales price.
Here’s an example of what can happen…
Say you list your property for sale.
Your agent provides a thorough appraisal, identifying all relevant recent sales.
On paper the properties identified in the comparative-market-appraisal make good sense. They all seem to be similar properties like yours. A ‘good indicator of price’ your agent will say.
But hang on a second. Have you considered the five things that may have influenced their sales price?
Probably not. Because unless your agent sold those properties, he or she probably doesn’t know.
— One of the comparison properties may have been sold under some kind of ‘SELLER DURESS’ (e.g. they had lost their job and had to sell quickly).
— Another of the comparisons may have had ‘poor marketing’ and as a result didn’t get enough exposure to the market or attract enough ‘A-BUYERS’ (I’ll explain who they are later in this chapter) causing the property to be ‘UNDER-SOLD’.
— While another had its sale price botched because the agent wasn’t a competent skilled negotiator.
This is why getting an ‘APPRAISAL’ is fraught with danger.
You can’t just simply say… “OH there’s a property that just sold like mine, so I can expect what they got.”
That assumption doesn’t take into consideration the ‘5 THINGS THAT INFLUENCE PRICE’ and how those 5-things affected the sale of the property you’re using as a comparison and as a ‘PRICE-GUIDE’ for your property.
Now you might be thinking this makes pricing your property hard.
Well the truth is, it does make it hard.
Any agent that waltzes in and pumps up their chest professing to know exactly what your property will sell for either doesn’t understand ‘PRICE-DYNAMICS’ and the ‘5 THINGS THAT INFLUENCE PRICE’ or they’re psychic. (Not many psychic agents out there so I’m guessing they’re the former.)
So what’s the solution?
Well the first thing to do is find an agent that’s more concerned about getting you the highest price than trying to “estimate” (guesstimate!) what your property is worth.
When it comes to achieving a ‘PREMIUM-PRICE’ for your property an appraisal has its limitations.
What’s more beneficial than “guesstimating” a sales price, is the answer to this question…
- “WHAT DO YOU THINK IS HAPPENING TO THE MARKET OVER TIME?” (And what actual real evidence do you have to support your answer?)
The TREND IS YOUR FRIEND!!!
Specifically, there are 3-trends…
— The market is either ‘TRENDING-UP’ over time — that means there’s proof that the market is rising; and therefore, it could be described as a ‘SELLER’S-MARKET’.
— Or the market is ‘TRENDING-FLAT’ over time — that means all the evidence is saying the market isn’t going up or down, it’s just bouncing along without much change.
— Or the market is ‘TRENDING-DOWN’ over time — that means all the evidence is pointing to prices easing or even dropping; in which case it’s commonly referred to as a ‘BUYERS-MARKET’.
When you’re certain what the trend is, it doesn’t matter so much what the ‘appraised price’ of your property is, what matters is you now know what to do to beat the trend or even benefit from the trend.
- If it’s ‘TRENDING-DOWN’ — the quicker you sell the better, that is, the longer your property stays on the market the less it will be worth.
- If it’s ‘TRENDING-FLAT’ — what’s important is to get it sold before it becomes stale – the statistics show in a flat trending market, the longer the property is on the market it gets a stigma about it and buyers start to ignore it. That will cause the price to be driven down over time.
- If it’s ‘TRENDING-UP’ — an appraisal makes even less sense. That is, over time the price will go up. Now that will also depend on the time frame. In this case you will want to take advantage of an upward trending market by NOT capping the sales price at a pre-conceived idea of what it is worth. Fact is, it could be worth more.
WARNING: Most sellers get caught up in the hype of selling their home and nearly always believe the market is going up or about to go up. Most sellers also believe their property is worth more than it is. That’s human nature. Desire replaces reality.
It may be the case that at the time of you reading this book the market is indeed trending up. If that is so, you need to ask this question… “By what percentage per month is it going up and how long will that upward trend last?”
Don’t fool yourself into believing markets go up and up for ever. You and I both know they don’t. You have to consider the impact the economy will have on the property market in the near future. You also have to look at the bigger picture. Look at world economic trends as they too can have an impact on the market over time.
Plus, you need to understand what’s driving the current trend in order to determine what the market will be like in the near future. The question to ask is how sustainable is this trend? How long will it last? These are all good questions to ask your agent. Your agent should be an expert on market trends.