The Asking Price Delusion
How some property sellers lose thousands.
Opinion by Neil Jenman.
When it comes to the value of our properties most of us tend to be over-optimistic. Our place is better than similar properties. It’s got better features, it’s better constructed and, of course, it’s in a better location.
And then, when it comes time to sell, the price we want for our own properties is almost always more than it should be. Nothing wrong with this, you might think. We’re all entitled to get the best price possible when we sell.
The only trouble is, however, that by placing too high a price on their properties, many property sellers are unwittingly costing themselves thousands of dollars.
Here’s what happens in thousands of cases. A property is placed on the market with an asking price well above its true value. Consequently the buyers that should see it never get to see it.
For example, let’s say the true value of a property is $750,000. Most owners seem to have an initial tendency to over-price their properties by at least ten per cent. That means that a $750,000 property could be placed on the market for well over $800,000, perhaps as much as $850,000.
So, obviously, the buyers who are looking in the $750,000 range just ignore the property when it’s priced above $800,000.
But what about the buyers who are looking in the $800,000 and above range, surely they’ll see the property?
Yes, of course, they will. But this is the point that many sellers overlook, especially these days – they don’t realise that most buyers aren’t stupid. Buyers shop around, they spend hours scouring the Internet; they soon get to know the true property values. Buyers know an over-priced property when they see it. Consequently, buyers who are looking in the $800,000 range just laugh at over-priced properties. And guess what this means? No one buys the over-priced properties.
A few weeks later, when the sellers realise they have priced their properties too highly, they usually start to see sense and reduce their asking prices. But, by then, it’s often too late. The damage has been done. The property has been on the market for too long, it has become stale and people, generally, are starting to wonder what’s wrong with it. Now, instead of reducing the asking price to its former true value of, say, $750,000, the sellers may have to reduce the price even lower to attract a serious buyer. Consequently, a home that should have sold for around $750,000 may often sell for closer to $700,000 – and all because the owners priced it too high to begin with.
When it comes to the value of our own homes, most of us live in some sort of fantasy land. Indeed, a recent study (conducted in the United States) revealed that, when most owners think of the value of the their own homes, they are “bordering on delusional”.
And it’s this delusion factor that can do so much financial damage when we sell our homes. There’s no denying the fact that the longer a home remains on the market for sale, the lower the price it’s likely to attract. And when homes are placed on the market at over-priced asking rates, they have a tendency to sit on the market for weeks on end. First, the buyers ignore them and then, second, the buyers laugh at them.
It’s a fact, over-priced properties often become under-priced sales.
So, if you’re selling your property in today’s market don’t fall for the asking price delusion. Price it right and get the best price for it.
How do you know the right price to ask? Well, first of all, you should consider getting a registered valuation. It could be a few hundred dollars well spent.
And, second, when you are speaking to agents, tell them to tell you the truth. Say to the agent, “What’s the minimum price you reckon my home will fetch? Is there a price below which you will agree not to be paid a commission?” This will let the agent know that you are a serious seller who is not interested in being fed a delusional price to try and win your business.
There will never be more buyers for your property than when you first place your property for sale. And that’s the time to be sure you are asking a fair price for it, not a delusional high price that will cause your property to be rejected, to perhaps becoming the laughing stock of the area.
If you’re serious about selling, one of the best favours you can do for yourself – to make sure you get the very best price possible – is to price your property fairly and correctly. If you get too greedy or you let your emotional attachment to your home cause you to place too high a price on it, then you are going to fall for the delusion trap.
And you can be sure of one thing – inflated asking prices almost always lead to deflated selling prices.
Price your property at the right price. And sell it for the best price.
This article was written in February 2010