Setting The Right Price

A tough issue in any market is establishing the right listing price. When the price is too high and informed buyers have a choice, they simply ignore the property or become suspicious, and within a few weeks it is a stale listing. Set too low and it sells within a few days, which indicates money may have been left on the table. Vendor misinformation doesn’t help the situation for agents either.

The objective here is to ensure they head directly into your office before they spend $70 on an AVM which may have unreliable results.

A few months ago I conducted an analysis of properties yet to be sold and still listed on the market after 50 days. New estimated prices were then used to calculate how much each listing was over or under priced. Our results confirmed that in nearly 50% of cases, the unsold properties had been listed at prices 10% or more above our PriceFinder estimate.

Whilst the total amount of current listings on the market and median price has some level of impact on how quickly a property will sell, setting the right listing price from scratch is the most important factor. Another key consideration is how much a market may change over a short period. Other houses that sell whilst a property is currently listed can have a significant impact on the market price. Local agents who co-operate and share sales data with one another will have an excellent handle on market conditions, which can assist in setting the right price.

A significant jump in total listings can also place a downward pressure on the price. In many areas around Australia we are seeing listings increase disproportionately to sales turnover, pushing up stock levels. Calculating total stock level (in months) is widely used in the United States and is now increasingly used in Australia. Typically any location with more than six months of stock will correlate to discounting or a downward shift in price. Vendors can benefit from this information, which can help them focus on current market conditions rather than what the house may have sold for in 2007 or in a past peak.

The PriceFinder system allows an agent and the vendor to co-operatively set the price. We call this a ‘shoulder-to-shoulder’ appraisal. This helps an agent by including the seller in the process of comparing each of six comparable properties to the one being listed. Automated valuation model (AVM) reports don’t do this. An AVM can create a number of risks for agents, especially when they overprice and set unrealistic expectations.

In the example below we can see a property that recently sold for $660k that has included comparable sales in the mid to late $700’s. A biased or poorly informed seller may simply focus on the sale price of the house nearby or an inflated AVM report without much thought given to condition or other variables. Using PriceFinder, we can adjust for the quality differences for five out of the six houses to set a more realistic price.

Another method leverages map based searches. Sales within a user defined area can be searched and a range of statistical calculations provided instantly. Agents can work down the list of properties and select comparable sales within seconds.

Seller misinformation
Obviously there are several automated valuation model (AVM) reports now sold online to consumers and also on a transactional basis to agents, leveraging both government and sales data collected from real estate offices. Whilst the automated models can work very well 50% of the time, they perform poorly when significant quality differences exist between properties. The problem that often results from these automated reports is when price is significantly higher than what a professional agent would advise. If the home owner paid good money for the AVM, they will probably trust the result. It’s not much fun for an agent, but there are good ways to handle this problem.

You can use PriceFinder as often as you need to run your office as part of a subscription package. You can leverage it to help ‘undo’ the problems created by inflated AVMs presented by vendors. Agents also have the option to offer the PriceFinder service for free to the local market. The objective here is to ensure they head directly into your office before they spend $70 on an AVM which may have unreliable results. Ideally, inviting home owners into your office for ‘free PriceFinder estimates’ can lead to full on-site inspections and conversions to new listings.

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