One of the critical things you need to get right when putting your home or investment property on the market is setting the right asking price.
Set it too low and you could miss out on extra profits; set it too high and you might scare off potential buyers and lose a sale.
Typically there’s a fine line between meeting the market and getting the price you want.
There is also something else to consider: Make sure that your selling agent earns his or her commission.
In other words, while you should avoid setting an unrealistically high target, you still want an agent who can help you extract every sales dollar the market is prepared to pay.
To explore this point further let’s take a look at a typical real life example
Assuming you are planning to sell your property on its advised sales value – which is somewhere between $480,000 and $520,000, and you have agreed on a commission of 2.5% with the selling agent (we’ll ignore marketing costs and the method of sale for the purpose of this example), the below table compares sales proceeds in $5,000 increments with commission costs, starting with a base sales price of $480,000:
The key take-away from this example is the extra $40,000 you could get by achieving the top sales price is considerably higher than the selling agent’s extra $1,000 in sales commission for achieving the same target.
This is not to say that your selling agent won’t try to get you the best result possible, but it does highlight the importance of knowing what sales target to get them to aim for because it means so much more to you, than them.
So, what can you do to make sure you set the right sales target?
In my experience there are 5 key steps you can take that will help determine a realistic asking price and help you assess the reasonableness of the selling price estimate provided by your agent…
1. Set Your Base Price
The first thing to do is work out what your minimum price is.
Make sure you try and do this objectively – allowing your emotions to influence this process could cause you all sorts of problems if you don’t have realistic expectations.
A good starting point is to work out the value of the land component of your property.
Land value is affected by many factors including position, shape, size, slope, topography and so on.
Speak to a number of selling agents in the area to get a sense of what the median sales value per square metre of land is for your suburb.
Discuss and adjust your price for anything that might add or subtract value from your property.
Once you have a number, simply multiply it by your property’s square metres and you’ll get your base land value.
Next, consider what you think the structures on your property might be worth (e.g. house, unit, pool, garden, garages etc.).
Add this to your base land value and you have your rough base price.
You can then compare this to your minimum acceptable price to see how it stacks up.
2: Get a Property Valuation and Price Estimate
Step 1 was about getting a rough estimate.
Now it’s time to be a little more commercial and scientific.
This will provide you with a calculated estimate on what your property could be worth, along with available property history and comparable properties in the area.
This can be a great way to help test and refine your price expectations, however don’t forget that this valuation may not take into account any improvements you’ve made – so use this as a guide only.
You should also arrange for two or three local selling agents to provide a free property appraisal.
Not only will they be able to give you some guidance on price setting, but you can also use the occasion as an opportunity to assess their commission costs, selling strategies and engagement skills – which may help you choose the agent you want to work with.
3: Compare Sold Properties
While you’re talking with selling agents, get them to provide you with a list of comparable sold properties going back over the past six months or so.
Comparable means they are of a similar size, location and type.
You want these comparisons to be reasonably current so they better reflect what’s happening in the market today.
You can use these lists to test things like land value, market demand and of course prices achieved.
They should also be compared and contrasted with your property to help assess whether you may need to make any price adjustments.
4: Compare For Sale Properties
This is aligned with Step 3, and can also be found on Onthehouse.com.au as mentioned in Step 2 – in addition to asking local selling agents.
Looking at comparable properties that are currently listed for sale allows you to take into account what’s likely to happen as far as future sales are concerned.
Not only will it give you a sense of vendor expectations but it will also give you some insights into the pricing and sales strategies of your competition.
5: Take Market Conditions into Account
Finally, you need to familiarise yourself with what’s happening in the market, including developing trends.
In particular, you need to be aware of whether it’s a buyers’ or sellers’ market.
If it’s a sellers’ market it probably means you’re in a strong position and should be able to achieve the top end (or higher) of your price range.
However, in a buyers’ market, you may have to negotiate and possibly lower your price expectations if you’re keen to sell.
To get a handle on where the market is sitting, research your suburb here.
Also read the latest finance and property articles and reports, and talk to local selling agents.
Doing all of these things will provide you with useful guidance and insights.
As a final thought, remember that, at the end of the day, the market will determine what your property is worth.
If you want a successful sale, it is important that you and the market are on the same page.