In a rising market, vendors can over-price with minimal risks in doing so. However, in a normal or falling market, overpricing often leads to underselling. The opposite is also true: if you price at market price, you increase the chances of selling above market price – even if the market is falling or flat.
Vendors who list above market price often languish on the market unsold and inadvertently turn the best buyers off their home. The vendors have unintentionally set up a win/lose negotiation – I will only sell if the buyer overpays. Naturally, many buyers reject this equation.
Many home buyers are reluctant to step forward on a home that has gone stale in the eyes of the market. Home sellers are better off withdrawing from sale than languishing unsold and unloved.
Pre-internet, the vendor that deliberately overpriced and waited for someone to ‘pay my price’ had fewer downside risks in doing so. In the digital age, the advertised history is on record for all time.
Every property now has a digital footprint. Buyers can easily access the advertised history of properties. If your home is overpriced and unsold after a lengthy sales campaign, the educated buyers have been gifted crucial information in the negotiation process.
The auction system offers no protection against failed campaigns given true auction clearance rates plummeted to 50% in late 2015. The principle of market price holds true regardless of the sales process.
Understanding the fundamental (fair) market value of your property is the key to a timely sale at the best possible price.
Understanding fundamental value for your primary asset is simple in theory but challenging in practice. Putting a market value on something that is emotionally and financially precious to you is difficult. The fact that some agents will overquote in an attempt to buy the listing, combined with normal market movements, makes the task of establishing fair market price even more challenging.
However, the benefit in establishing fair market value ensures that you don’t reject the best buyer or, conversely, jump at the first (cheeky) offer.
Once you have established fair market price for your home, you need to ask whether that is an acceptable price to you. If it’s not, you may be best served by not listing on the market at all.
A failed campaign can haunt you in the future.
If the market price is one that allows you to comfortably move on, you can then list on the market for the highest offer at or above fair market price. You have set up a circumstance of a win/win negotiation.
Fair market price often creates buyer competition. Sellers want to negotiate but buyers want to buy. The best way to attract the best buyers is to price accurately and fairly. This maximises the number of bidders for your home, ensuring a win for you and a win for the buyers, who are in competition against buyers rather than an overpriced vendor. Buyers are more accepting of genuine buyer competition than they are of a vendor who is blatantly trying to ‘beat the market’.