When it comes to working out the price of their own home, many sellers take one of the following two approaches, neither of which reflect the way a valuer, or indeed and more importantly a buyer, approach determining value. I call them:
- The Cost Plus approach
- The Cost Differential approach
Simply put, the cost plus approach is where a seller goes:
$ Purchase price I paid + stamp duty I paid + cost of renovations + Agent selling fees + cost of marketing = What I want as a selling price.
And the cost differential approach looks something like:
$ The cost of the house I want to buy +/- the amount of mortgage I want (or can afford) + my new car/holiday = What I want as a selling price.
For sellers that have purchased a property in the last 10 years, when market conditions have been flat at best, or indeed in the last 4 to 5 years where prices have softened, pricing your property using either of these approaches, when buyers can check exactly what you paid for your home and how it looked when you bought it, is a surefire way to sabotage your sale.
Accepting the likely reality of making a loss can be a bitter pill to swallow. I know, I’m in the same position myself with my own investments! But listening to the advice of an agent who tells you the Cost Plus or Coast Differential approaches are feasible because they’re desperate to get your listing, or wishfully thinking that your property is going to be the exception to the rule, isn’t going to bring you a great outcome.
Your property is worth what a BUYER is prepared to pay for it. And buyers do their homework. They know exactly what comparable properties are selling for in the local market and don’t want to pay a premium for your additional expenses or holiday – would you?!
Our job as agents is to find you the BEST BUYER that’s prepared to pay you the most amount of money in the prevailing market – and you won’t find them pricing your property at a hope price level. It’s the process we implement, not the promise of a price, that’s going to get you the best outcome. A smart pricing strategy combined with great presentation and promotion that encourages buyer competition is the best way to ensure you find that best buyer and get that best outcome.
If you’re thinking of selling, speak to quality local agents that are well across the most recent and relevant sales in your area and listen to their feedback and advice on price, making sure that what they’re saying is supported by quality comparable sales evidence – it may not be what you want to hear, but it will be what you need to hear.