Making sense of pricing your home to sell in the current market

In today’s housing market, both sellers and buyers are bombarded with a variety of often mixed messages on pricing their homes to sell, or an array of bargains at reduced prices.

While the residential property market in South Africa remains active, with sought-after areas in high demand, and correctly-priced homes in the price band below R3 million generally selling well, there’s no doubt that it remains mainly a buyer’s market, says Dr Andrew Golding, chief executive of the Pam Golding Property group.

Naturally, sellers want to secure the best price for their hard-earned assets, while buyers – in any market, but particularly now – are seeking good value.

So how do the two objectives ‘meet’, resulting in a successfully concluded transaction?

Says Dr Golding: “There is the opportunity for a more strategic and scientific approach, backed up by relevant, current data.

“The first fact to be borne in mind is that if your home is not correctly and realistically priced when it first gets listed in order to be competitive in today’s market, it is likely that it will not sell or at least certainly not quickly and then probably with an erosion of value.

“All prospective purchasers, including international buyers, are price-savvy and aware of the fact that there are generally a large number of homes on the market at present. It stands to reason that the more properties there are on the market, the more your individual home needs to stand out from the rest and offer good value for money to buyers.

“Furthermore, banks are also offering very competitive rates and, in some instances, 100% loans, providing buyers with even more options and room to negotiate. On the other hand, some buyers have cash which affords them even more bargaining power.”

Price right from the start

Dr Golding continues: “Our most recently compiled statistics show that if a property does not attract meaningful interest in the first few weeks of being listed, an important and significant opportunity will have been lost to correctly position the home via correct pricing to compete with other comparable properties available for purchase. This is because, with the omnipresence of property portals, buyers are able to easily view the particular property in question online, compare the price, location and condition of homes for sale in the neighbourhood and possibly pass it over due to it being incorrectly priced in comparison. At that point, as a seller, you’ve effectively ‘lost’ the pool of current prospective buyers.

“We find that if a home is priced above the current realistic market value – then it is likely to remain on the market for an extended period of time. The longer a property stays on the market incorrectly priced, the lower its perceived value in the minds of prospective buyers who tend to think of it as overpriced or that the home is somehow flawed. The end result is that the property is viewed sceptically by a limited pool of buyers and will consistently achieve a lower price than if it was correctly priced from the outset.

“There is a misconception that putting a home on the market at a high price which considerably exceeds its current market value will be of benefit in ‘testing the waters’.”

Dr Golding says with so many properties on the market at present, this approach is not advisable, as it simply adds to the large volume of homes which buyers then need to view and consider. Buyers are informed, they realise they have a broad selection from which to choose, but often having such a wide variety means they may be unsure as to which properties offer the best value, especially when they see numerous properties marked ‘price reduced’. This may delay their purchasing decision as they wait for the next ‘deal’ to come along.

“Sellers who are able to wait for trading conditions to improve, are better advised to take their homes off the market. Our research has shown that the higher a property is priced above its ‘selling zone’ – namely the sweet spot where serious buyers are making offers –  the longer the time it typically takes to sell and the higher the number of price adjustments required to attract buyers, resulting in a lower selling price achieved for the property.

“A reduction in the volume of properties listed would also go some way towards stabilising the market so that the normal forces of supply and demand are at play, rather than an overweighting of stock on the market.”

Dr Golding advises that if you have a deadline by which you need to sell then it is advisable to consult an experienced agent with a good track record in your area for advice on pricing your home accurately to sell.

“An accurate valuation does not only include reviewing prices achieved in recent years, but also involves numerous factors such as a comparative market analysis of actual prices achieved recently for similar homes in your area, the condition and exact location of your property  including proximity to schools, transport routes and amenities, rates and levies, general market activity, sentiment and other macro-economic factors, among others.”

Why an exclusive mandate works

He says: “Of further relevance is the fact that properties on an exclusive mandate achieve, on average, a better selling price than those on an open mandate. They also typically sell in a shorter period of time. This is because the agent is able to work with the seller to judiciously manage the pricing strategy of the property, ensuring that its initial listing price is within the ’selling zone’ based on its market value. With an open mandate, because there are several agents involved in the transaction, one agent is not able to effectively manage the pricing strategy of the property.”

Offering a word of caution, Dr Golding says especially in today’s market, it is likely that some agents may list a property at a high price initially in order to obtain the mandate and then reduce the listing price significantly thereafter, damaging the property’s initial exposure to the market and ultimately decreasing the potential selling price.

“However, this is definitely not a one size fits all market, it has a host of nuances and factors at play in different regions and suburbs around the country. In some high demand areas or areas where there is tremendous value for money, well-priced homes are selling in days.

“The key to successfully selling your home is to work with a reputable estate agent who has extensive knowledge and experience selling in your area, and is able to develop a strategic marketing plan with accurate, market-related pricing.”