Before you call an agent, call a valuer.
by Neil Jenman
READING TIME: Apx 6 minutes
When you sell your home, beware of a common trap – pricing it too high. If you ask too much in the beginning, you may sell too low in the end.
This is exactly what happened recently to one elderly farmer. His farm was worth about $2.7 million – $3 million at the most. He demanded $4 million. The high asking price caused his farm to be ignored or rejected by buyers. Neighbours laughed at him. Months later, when he was desperate and sick, he accepted an offer of $2 million from a sharp buyer. “I got ripped off,” was a statement he later repeated many times before he passed away.
The first thing you need when selling your property is an accurate idea of its value. The person most likely to tell you the true value is a real estate valuer. Not a real estate agent.
Valuers are generally more honest than agents. Agents are biased, they have a strong incentive to lie about the value of your property. But valuers are the hidden heroes in real estate.
Here’s what happens: Most sellers call two or three agents and say: “We are thinking of selling. How much is our place worth?”
Agents know that the higher they quote for your property, the more likely you will choose them as your agent. Therefore, sellers are encouraging agents to lie to them.
Valuers have neither an incentive nor a reason to lie to you. You pay their fee and they give you their valuation. The fee for a valuer – a few hundred dollars – is money well spent.
Don’t think you won’t get caught if an agent lies about the price of your home. If you’re like most sellers, you believe your home is worth more than similar homes. Agents play to this belief by telling you what you want to hear.
Most homeowners want too much money, especially in the beginning when their home is first offered for sale. There are two reasons why this happens so often. The first is the fear of selling too cheaply, which comes from a distrust of agents. Sellers commonly load the price and say, “I am not going to give it away.”
The second reason sellers ask too much is that they tend to see only the good in their homes. Rarely do they see faults and, if they do, they underestimate their significance while over-estimating the features of their homes. In economics this is called “the endowment effect”, the natural tendency to place an unrealistically high value on something to which we are personally attached. Selling a family home is a classic case of “the endowment effect”.
Dr Max Bazerman, a Harvard professor who wrote the book ‘Smart Money Decisions’, explains: “The husband and wife who are about to sell the home in which they raised their family may find it difficult to objectively assess the selling price of something to which they have a strong emotional connection.”
Bazerman says the “endowment effect” harms sellers, because it causes them to reject early offers (often the best offers) only to “regret the decision after their home gets stuck on the market”. Not only do sellers end up losing financially, they must also endure the emotional pain of having “a cherished belonging rejected over and over again by potential buyers put off by an unrealistically high price.”
When home-sellers, who are anxious to get the highest price, meet agents, who are desperate to make sales, it’s a recipe for deceit. All the agent has to do is tell the sellers what they want to hear – “It’s a wonderful home, you’ll get a great price” – and the sellers sign-up with the agent. This is why homes are first offered for sale for too much money. The agents must then use tricks to cover-up their initial lies and get the sellers to reduce their inflated prices. This is why agents blame “the market” when asking sellers to lower their prices. Sellers then feel they are losing money, but you can’t lose something you never could have achieved.
Unfortunately, the solution is rarely about honesty. If agents started by telling sellers the truth about the value of their homes, many sellers will choose another agent – one prepared to lie and inflate the price. Agents know from bitter experience that telling the truth causes them to be rejected by sellers. Therefore, the best liars become the most “successful” agents.
Dr Bazerman says the solution is simple. Sellers “should seek out an unbiased assessment” of the home from “a knowledgeable but disinterested third party.” This means that home-sellers, unless they have complete trust in an agent, should engage an independent and reputable registered valuer before their home goes for sale. The valuation becomes their guide to the right price. The valuer is the one person who tells sellers the truth about the likely selling price of their home.
Armed with this truthful knowledge, sellers can make decisions devoid of emotional attachment. They can remove the danger of “the endowment effect”. They can make sure that their role – to get the best market price – is more likely to be successful. They will know what to say when agents or buyers try to lower their price. Of course, sellers do not have to disclose the details of the valuation to anyone.
As one home-seller put it, “Having a valuation was the smartest thing we did. It was like having inside knowledge. We sold for more than the valuation, but without the valuation we would almost certainly have started too high, had our home rejected by buyers and then got desperate and sold too low. I will never sell a home again without using a valuer.”
When it comes time to sell your home, call a valuer first. The cost of a few hundred dollars is a wise investment. Valuers spend years at university, they are far more qualified than agents to give you the right price. Plus, unlike agents, valuers have no reason to lie to you.
Good valuers truly are the hidden heroes of real estate.
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