Why Asking Price and Getting Price is Not The Same Thing
In my experience as a luxury home realtor, most home sellers in their first meeting often tell me that they heard about a certain house nearby that went for sale at a certain price. And they want to use that price as a guideline for setting their own price. That is when I gently remind them that asking for a certain price and getting that same price can be different things altogether. Let us explore this topic in more detail in this article at the end of which you should get a good idea of how to exactly price your property so that it sells soon rather than languish on the property market for months to come.
Firstly do remember that once you decide to sell you should ideally be able to sell your house within 6 months. The longer your property remains on the market and the more people know about it the more the chances that there will be a “stigma” (bad name) attached to the house. Even real estate brokers may refuse to sell your house if they know that your house hasn’t been able to sell in the market for a long time. We at Gupta & Sen definitely do ask sellers who approach us right at the very beginning – “How long has this property been on the market?”. If you are holding on to a fantasy of getting a dream price and your property does not sell for a long time, eventually you will be forced to lower the price significantly just to be able to finally sell it. Do remember that once a stigma takes hold, buyers may not consider your home again no matter how much you lower the price! They will say, “Oh that house. I know about it. I had seen that property two years ago. Its still available for sale?! Sorry not interested!”
Buyers Also Fear Rejection
Let me also give you another insight into the mind of a buyer. In my experience, seasoned buyers in most markets do not like to offer more than a 10% reduction in price from the listed price of a home. They usually do not want to insult a seller with a lower offer. Of course there are exceptions but the 10% guideline holds true in most cases.
Now let us look at this scenario. It is human psychology at play here. A buyer has seen a property and makes an offer of 10 % below the listed price. Even though the buyer says that he doesn’t want to insult the seller with a low offer that is probably not the real reason. Just like Sellers dont like being rejected, buyers too do not want to feel rejected by making an offer that is too low and have it turned down. If the seller rejects the buyer’s offer, the potential buyer experiences a stab of rejection that hurts momentarily. Which is why if you are a home seller I can assure you that serious buyers avoid this scenario at all costs by not making a very low offer in the first place. They would rather just reject the property and tell their broker to find them something else within their price range. This is again an instance of the dangers of overpricing your property and not finding a suitable buyer.
Finding Ways to Set your Price
- Before setting your sale price for your property consult the best real estate agent and ask for the expert’s pricing recommendation.
- Try and understand the process by which the agent will use to arrive at the suggested sale price.
- Ask for multiple recommendations from other agents in the market as well. Do remember that each agent should not know the discussions you have had with other agents. Which is why you must limit such requests to not more than 2 – 3 agents.
Ultimate Test For Your Market Price
What is the ultimate test for the sale price that you have set for your home? That will have to be measure of market activity on your home. If a lot of agents and buyers have looked at your property online, but if no one calls or wants to personally visit to see the property you can rest assured that the sale price has been set too high for your property. Or if hundreds of people have seen your listing on Realty Websites like magicbricks.com, 99acres.com or our very own website www.guptasen.com and no one calls to see the house then it is a sign that the market has rejected your value proposition.
Reset The Price
But all is not lost. By revising the initial market price and lowering the price to match current market standards, you can align your property’s sale price to what buyers are willing to consider as a good value proposition. This way you can actively re-start the sale process. I will give you a great example here of how resetting the sale price can immediately have an impact. We recently sold a high end property in Mumbai. It was on the market for two years at a higher price with very little movement and activity. After the sale happened, the buyer told us how much she had always wanted this house and had been looking at it online on our website during the entire two years while it was listed at a higher price! But not once did she call us up for more information or to see the house. She just watched anonymously and waited. When the price was adjusted she couldn’t believe her luck. She came in and paid full price! So if you are a seller do remember that in the online world potential buyers are watching your property online and keeping track of it even if you don’t know it yourself!
What Has Recently Sold Nearby
This brings me to a very important point that most property sellers atleast in India fail to do before they set a sale price on their house – Research! In any market one has to look at offerings from competing properties to get a clear idea of the property market. To begin with as a seller you must definitely look at recent sales of homes in your area that are similar to yours. When I say “recent” I mean less than the last 6 months. Knowing the figures will give you an idea about whether the property market in your area is rising or sinking. If property prices are going upwards, then would you base your pricing decision on sales that happened 8 months or 1 year ago? Similarly if prices are heading south you cant use sale prices that happened six months ago as reference either. Sales that have happened more than 6 months back are not relevant when you are trying to fix the sales price for your home. So make a detailed report of all the sales that have happened within the last 6 months in your area or your apartment complex and adjust them according to the below factors:
1. Time
Market value of property will go up or down over time.
2. Usability
Compare the age and condition (renovations, furnished or unfurnished) of the other homes compared to yours.
3. Utility
Compare the other homes that have sold to yours in terms of area (square footage), design and layout, number of bedrooms and factors such as desirability of the neighbourhood of the homes that you are comparing to yours.
By taking the above steps you will be more objective and less subjective when you are trying to accurately price your home so that it is neither overpriced nor underpriced. Let me tell you here that it is at this point where you will truly value the expertise and consultancy of a trusted and well-chosen real estate consultant. Too often property sellers fix the selling price of their home before contacting a real estate consultant. But experienced home sellers who have successfully sold their homes know that determining the initial and final offer price is the most important part of what your real estate agent does for you. So considering this, I would advise you to start by talking to your real estate consultant before even setting the offer price for your house.
How We Do It
At Gupta & Sen for our clients we use Excel spreadsheets that track relevant sales data for every market. Whatever be the methods, one has to have a way of assessing the sales that are happening in the market to account for the differences between your properties and the other “sold” properties that one is comparing to. For example perhaps one house sold for ₹ 15 Cr in Carter Road, Bandra. Our data indicates that an average sale of a bright and sunny sea-facing apartment in that side would command 20 % higher prices than in the interior parts of Bandra. So you have to make an adjustment for that when tracking sales data. Maybe another sale of a property happened seven months ago when prices were 15 % higher (such as pre-Covid times). Similarly one has to make adjustments like that when you track sales data in order to put a final offer price for your property in the current scenario.
Arriving upon a final offer price is a very important service that your real estate advisor can offer to you. It is why you select an expert to market your property in the first place. Ask your agent the following question:
- “How did you arrive at the suggested offer price?”
- “How did you adjust for the differences between the houses that have sold and the house I am selling?”
After that, ask to see the data behind the logic and the advice.
Understanding Cost Vs. Value
Whenever you set out to price your home, try and take some time to understand the difference between cost and value. Lets look at an instance of a property seller who has added gold plated fittings in the bathroom that cost a few lakhs. Just because the owner of the house added gold faucets to his bathrooms does not automatically mean that few more lakhs should be added to the price of the house. The seller might protest, “I just put in these beautiful faucets, imported chandeliers from Turkey and these rugs from Persia” and so on. But that’s not how it works.
Here’s what the seller needs to answer, “If you had known you were going to sell your property in two months, would you have spent the money to install those gold faucets?!”
“Probably not”
“Why?”
“Because I might not recover that money from the sale”
Experienced sellers of high end properties know that when they buy and install something expensive in their houses – such as chandeliers, a heated infinity pool, a million dollar music system – they are unlikely to recover a proportionate amount when they sell the property. The typical buyer of your home may not really care about these things and therefore may not be willing to pay for them.
Cost is what you pay, Value is what you get!
Always keep the above quote in mind. This means that you should not expect to get paid the value commensurate to all the home improvements you have made. Instead if you are looking at some sort of return on investment look at the personal satisfaction and pleasure that you derived from finishing that infinity pool as the reward 🙂
The Theory of Regression and Progression
There is something called “Regression” in the business of Real Estate. This theory states that when you build the most expensive house in your neighbourhood, the other properties will “pull down” the value of your house by a small margin. The principle of Progression states that when you have the smallest house in a neighbourhood, the more expensive homes will “pull up” the value of your home by a small margin.
Think about your own property and see if these principles apply to your own property? These principles are another reason why doing research on comparable properties is such an important task.
A Special Tip
Here’s a special tip that can help you to price your house right and also set an urgency to the whole process. Make a list of all the special features in your home and ask the real estate consultant who you have decided to work with to sell your property and ask whether the features of your house add value to the property in terms of numbers. Also ask your agent the below questions:
- How much would the price of my house have to be in order for me to sell it within 30 days flat?
- What is your process for estimating the sale price of my house?
If you are a property seller and have just decided to list your property for sale or if your property has not been able to sell for the longest time, by paying special attention to the points that I have made in this article you can increase your chances of a successful sale by a large margin! Feel free to call us for any consultancy at any stage during the sale process. We would be more than happy to advise you!
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