Why Do Homeowners Undervalue Their Properties?

In a hot sellers market like the one we're in right now, where there are many buyers and not enough properties for sale, underpricing a home and then holding off on offers is a common approach.

Many individuals think to themselves, "Why not just price it at market value and let it sell?"

The reason for this is that it does not work as well that way.

The FOUR methods for determining a home's value
There are four ways to price a home in every market, according to our experience:

1. Underappreciated
It's likely that you'll receive many offers and sell for a higher price. However, there's always the possibility that the appropriate buyer won't show up on offer night. Fear of competition might stifle enthusiasm.

2. The Sweetspot
This is when you price it as close to market value as possible based on the facts you have.

3. The price of No Man's Land was slightly greater than the prior sales. In a rising market, where sales will catch up to the price, this can be a sensible strategy. In a flat or down market, however, missing the price by a small margin means the property is unlikely to sell.

No Chance Land is number four.
We've all seen properties that are so off the mark that it makes you want to laugh. It's usually not a smart idea to price something in this range if it can't be justified by genuine market data and rationale. But it's still done!

Which choice is the most suitable?
The answer is contingent on the market you're in and the level of competition you're up against.

The two greatest methods out of the four alternatives in a strong sellers market like we have now are #1 and #3.

However, #1 is the better option.

If you price it in "No Man's Land," and the majority of other sellers underprice, the difference between you and the other homes will be enormous. The lower-priced houses will attract buyers.

With this option, the odds are stacked against you.

When you choose "Undervalued" with an offer date, on the other hand, you get a LOT more interest.

Here's an illustration of why:

It attracts the attention of a lot more purchasers by decreasing the home's worth. Some of them may come to visit the house and make a bid that has no chance of being accepted... However, it will play a crucial role in increasing the overall number of proposals, allowing the top 1% to spend even more.

We'll get into that a little later.

What are the true desires of sellers?
Buyers are not in negotiation mode on the night you take offers. Because they are afraid that others will make a greater offer, they believe they will have to offer their absolute maximum price.

But it isn't just about the cost.

In their perfect offer, sellers look for FOUR things:

1. They are looking for the best deal.

2. They want to close on their preferred date.

3. They don't want any restrictions. The buyer has a "exit" if the finance or house inspection conditions are not met. They undermine the seller's confidence in the deal's success.

4. They want a check in their hands. The agreement will most certainly break apart without a check.

If there are enough offers, the seller is likely to receive all four items on their wish list. Intriguingly, we've seen a cheque in hand with a lower price get the job done since the seller knows it's a done deal.

With any other pricing option, you're unlikely to acquire all four.

Buyers will be aware of the number of offers received, but they will be unaware of the details (price, closing, inclusions, and conditions) of the other offers. To have a chance, they'll have to squeeze as hard as they possibly can.

The entire scenario is designed to place power in the seller's hands rather than the buyer's. Some purchasers prefer an open, auction-style process, although this model has yet to catch on in North America. Auctions are still permitted if all participants agree and certain protocols are followed. It's just not a common occurrence.

We've found some patterns within a group of ten competing proposals. Typically, the bottom 20% of the population is completely eliminated from the game. Sixty percent of the proposals are rather good and would be competitive in normal conditions. The award, however, is fought for by the top 20% of the population.

True, underpricing and delaying proposals is a huge waste of time and money for almost everyone involved...

We absolutely comprehend your situation. It's inefficient, and it irritates both buyers and agents.

BUT it's the most effective approach to sell your house for a lot of money... since it's all part of a broad plan to identify the top 20% - those one or two purchasers who want it more than anybody else.

That's why, in a hot sellers market like this one, it's still the gold standard.

No comments

Post Your Comment:

The trademarks REALTOR®, REALTORS®, and the REALTOR® logo are controlled by The Canadian Real Estate Association (CREA) and identify real estate professionals who are members of CREA. The trademarks MLS®, Multiple Listing Service® and the associated logos are owned by The Canadian Real Estate Association (CREA) and identify the quality of services provided by real estate professionals who are members of CREA.