Sound advice on setting the right price

Monthly roundup is a Q&A with answers supplied by leaders in the NZ real estate industry.

With a lot of doom and gloom talk about the property market going flat and possible price drops, how do vendors decide on the right price (or reserve) to put on their home? What advice should they seek, and who from, to make sure it’s not over or under-valued?

Bryan Thompson, Managing Director Harcourts New Zealand: When considering placing a property on the market, seller research is critical. Visit open homes to see what comparable properties are listed for but remember you must also look at how long the properties have been on the market as the price being asked is just that, an asking price, not the sale price.

If an asking price is set too high, properties can languish on the market which is never a good thing, so be careful with your comparisons! However, it will help you determine how much competition your property is up against in the market from properties like yours.

During the process of selecting a real estate sales consultant, you will be provided with a comparable market analysis (CMA). This will outline comparable properties currently listed for sale (your competition), recent comparable properties that have sold and the prices they achieved.

The CMA will also include a recommended likely selling range. This information is valuable as it combines facts alongside the experienced judgement of a real estate professional.

This experience and knowledge are critical components as markets move quickly. What a similar property sold for last month may be more or less than what it could sell for in the future. This is where professional advice from a sales consultant who is active in the market will assist with sound decision making.

Once on the market, the most powerful and relevant information will come from the buyers.

For properties utilising an auction campaign, your sales consultant will secure price feedback from genuine buyers as to the level they feel the property will sell for. You will utilise this information when discussing an appropriate reserve price with your sales consultant and auctioneer.

For properties listed with a price, you will get a direct response to your asking price through the number of inspections and offers you receive.

Set your price too high and inspections will be limited as the buyers in the market will be comparing your property to others available (your competition) and choosing those first.

Your sales consultant will ensure you receive this information so you can take proactive steps to make your property competitive in the marketplace.

Daniel Coulson, Chief Operating Officer, Ray White New Zealand: Pricing a property in any market can be challenging; the mistake of overpricing could result in a lack of interest.

The reason for this is, typically, the most active buyers in the market are well informed on current pricing, market conditions and new listings as they are launched.

If a property is listed with a price above what the market is willing to bear, those who are most likely to be in a position to purchase the home will disregard it and then the longer it sits on the market, the less desirable it looks. Buyers want to take confidence that they are not the only ones interested in a particular home.

A different risk exists for underpricing a property, meaning you don’t have the opportunity to maximise your return. Ultimately, a property will never sell for less than someone wants to sell it for, nor more than a buyer is willing to pay for it. The more potential buyers who see your home, the more context you will have once an offer or bid is presented to you.

In the current market and with current interest rates and lending restrictions, is auction still the recommended way to sell? What other options could a vendor consider?

Daniel Coulson, Chief Operating Officer, Ray White New Zealand: Anecdotally, mortgage brokers tell us that lending is slowly but surely getting easier. Interest rates typically don’t impact a specific method of sale but what owners should consider is what is most important to them in the process.

For many, it is price and certainty. The auction method of sale remains the only process that guarantees an unconditional offer (certainty), and it also remains the process that allows buyers to see their competition transparently.

When market conditions cool, there can be somewhat of a lack of confidence among purchasers. A salesperson’s job is to create confidence through the evidence of competition, ultimately uncovering the most a purchaser would be willing to pay (price). Having a timeframe on the process also alleviates the risk of the property becoming ‘stale’ due to the fact that an average auction campaign is still shorter than the median days to sell a home in New Zealand.

For this reason, many suggest that marketing a property without a price within a fixed time period, such as an auction, is still the best way to achieve fair market value.

Bryan Thompson, Managing Director Harcourts New Zealand: There are a range of methods of sale available to select from, and each has advantages and disadvantages.

The key advantages of auctions, regardless of market conditions, include, but are not limited to, the vendor setting the terms before going to market, a set time frame to ensure buyers act, concentrating on cash buyers first but also allowing conditional buyers to become prepared to act immediately should a cash buyer not secure the property, and the opportunity to sell prior to auction day, at auction or post auction.

The transparency provided by an auction campaign, where you can see your competition, is becoming more and more sought after by buyers, and the lack of a fixed price allows buyers to compare properties based on value and not simply on price.

Many buyers disregard properties due to an inflated asking price and are disappointed to see the property sold within their range later.

From a seller’s point of view, allowing competition to set the price for your property and being able to consider this before deciding to sell or not protects you from under selling or over pricing and missing the market - a key challenge in today’s market.

If, however, auction is not for you, then you can elect to go to the market with a fixed price. The is where the advice of an experienced real estate professional is critical.

Get the price wrong and you risk languishing on the market with buyers passing you by or set it too low and you may sell immediately leaving money on the table.

The key discussion for all sellers to have with their selected sales consultant is what is most important to them in their result? For many sellers it will be achieving the highest possible price under the best terms and with as little stress as possible. If that’s you, then auction should be an option you strongly consider.

If, however, the price you achieve isn’t the key criteria and you just want or need to sell quickly then perhaps you would consider a fixed price campaign. If you set the price appropriately, while you remove the opportunity for a premium that auction can offer, you may sell very quickly.

Whatever your situation and requirements, always take advice from an experienced and successful real estate sales consultant. If you don’t know one give me a call. I know a few!