Over the past few years many sellers have found themselves in the position – voluntarily or otherwise – where they have had to sell their properties for less than their original asking price. Selling below asking price is not a phenomenon restricted purely to a sluggish market though, says Jason Parker, a West Rand-based estate agent.
“Selling below asking price is nothing new. In fact, in my opinion, many houses sell below asking price due to the fact that they are overpriced to begin with. Many properties are on the market at inflated prices. Buyers know this and consequently enter into negotiations below fair market value. The agent then has to try and condition sellers down. The upshot is laborious, protracted negotiations that attempt to close a massive gap in price. Obviously this is not an ideal situation, but it can easily be avoided.”
Parker adds that agents and homeowners who overprice are floundering in the current market, despite the uptick in demand.
“One way to check if a property has been overpriced is to track the average length of time that properties are on the market. Part of the reason sellers may have overpriced is that they may have based their prices on competing stock.”
Parker’s philosophy for avoiding selling below asking prices is simple: “Price right to begin with,” he says. To this end, he advocates supporting valuations with a Comparative Market Analysis (CMA) and the various bank indices.
Do the homework
In other words, if you are considering selling your home, you would do well to “sniff around” before putting it on the market. A CMA is the perfect way to go about this. CMAs list a variety of factors that are pertinent not only for sellers but which can be beneficial to buyers too.
The following are usually included in a CMA:
off market/withdrawn/cancelled listings
similar square footage
similar age of construction
All of these factors can help interested parties to effectively gauge where the market is currently at, which should ultimately help determine a fair price. Parker adds that sellers should place their trust in the agents who can, and do, support their valuations with relevant statistics as opposed to employing emotive drivers.
Bank on it
Many of the major banks also supply useful information regarding property prices, trends and influencing factors. For instance, Standard Bank and ABSA bank use a median price and mean price respectively. A “mean” price is the average price calculated by adding up the total Rand value of sales/ registrations and dividing that by the number of units sold. However, it can be skewed easily by excessively low volumes of very high or very low deals.
The median price is the price at which half the properties sold fall above and half below. For example: four sales are recorded; three at R1-million and one at R20-million. The mean would be R23million, four of which equals R5.75-million. The median would be close to R1-million.
These indices are freely available and are updated monthly. According to Parker, the true value of a home can be extracted from these indices and the CMA data with the “spread” not exceeding eight to 10 percent.
“Once this information is derived, it is up to the seller to make the choice: market at fair value or raise the price sufficiently in anticipation of a negotiation. Simply put, marketing a property at fair value straight off the bat opens the door for a quick, reasonable deal. The agent can then support both parties in closing the deal and the exact same data that was supplied to the sellers may be used to extract fair value from a buyer. In other words a win-win situation all round.”