Steve Koerber's Old Blog

Remuera's house sold name since 1998 – 021864166

Posts Tagged ‘pricing’

Frustrated with auctions? Want to know what the vendor’s are expecting?

Posted by Steve Koerber on October 19, 2009

Have you ever been to an open home and asked the question “What are the vendor’s expecting?”

In New Zealand we bring so many homes to the market that have no pricing, it’s no wonder frustrated potential buyers are always asking the same question.  

Auction, tender, by negotiation, set sale, expressions of interest, CV$920,000, POA, PBN, etc, etc.

The other day I had a conversation with a lady who came through one of my open homes.  The property was going to auction and she said to me in a very matter-of-fact manner “You’re the local expert, how much do you expect this home to sell for?”

So how does an “expert” answer a perfectly reasonable question like that?

I’ll analyse her question step by step:

Firstly, she was absolutely correct. I am the local expert.  I’ve sold more homes in the area in question than any other agent.  I look inside more homes than any other agent and/or property valuer.  I see more homes than buyers see.  If anyone has a reliable crystal ball I should have the Ferrari of crystal balls!

Secondly, I still have difficulty guessing how much it will sell for.  It is an auction and the market will ultimately decide the home’s fate (and price).  Sure I could have said to her “it should sell in the $1million to $1.1million bracket”.  Why am I reluctant to say that?  For many reasons –

1.  If buyer sentiment changes (due to unforeseen circumstances) between now and the auction most buyers might freeze.  This would affect the value.

2.  If interest rates went up or down between now and the auction some buyers’ ability to buy might improve or get worse.  This would affect the value.

3.  If all similar properties available for sale all of a sudden sold, this would affect the value.  Similarly if the market was suddenly flooded with similar homes, that would affect the value.

4.  If a neighbour who had won lotto decided they need the land to house their new fleet of luxury cars, that would affect the value.

5.  If a motorway extension close by was announced, that would affect the value.

6.  If there was only one bidder, that would affect the value.

7.  If there were 20 bidders, that would affect the value.

The most important reason I would be reluctant to say that it should sell in the $1million to $1.1million range is this:  In case it doesn’t!  If the owner is so realistic that they just want to cut it loose it could sell in the $900,000s.  How would the buyer feel when they call me after the auction, me having said $1mil to $1.1mil and I say it sold for $910,000?

Sure, the same person could come to auction, bid it up to $1,050,000 and then see it sail up to $1.2million.  That could happen, but how much control do I (or they) have over that occurence?  Litttle or none!

The market is the market and the value is the price offered by the highest bidder.  When it comes to guessing or estimating the value, vendor expectations are completely irrelevant.  I understand why buyers ask the question, but hopefully I’ve explained why it can’t and shouldn’t be answered.

One of the most profound things I have learnt (from Tony Robbins) is that the quality of your life is determined by the quality of the questions you ask.  If you ask “what are the vendors expecting”, that’s not a great question.  Most people ask it, I know why they ask it, but it’s not going to help you to buy a home!  If you re-phrase and ask “would the vendors accept $1,000,000?” then you would be asking a very good question and you would be more likely to get a realistic answer.  (If I know the answer to that question  I’ll answer it).

Still not convinced?  Still think I must know what every home is worth?  Give my crystal ball a try…..    crystal ball

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How do you sell in a buyer’s market?

Posted by Steve Koerber on January 9, 2009

I realise that most people reading this blog are currently neither buyers nor sellers of real estate in Auckland. 

However, if you are considering buying at the moment, I envy you.  You have plenty of choice.  If you’re clever and well researched you’ll make a safe purchase.  Like all long term residential property owners in Auckland since the 1950’s, you’ll probably achieve a similar long term return and be glad you bought when you did.  Trying to time the real estate market is a mug’s game.  For long term success, the most important thing is to play the game and get into it.  

If you’re a seller, you might be wondering whether it is a good time to sell.  The answer is simple.  If you need to sell, you should.  If you don’t need to sell, it might be best to wait for a while. 

If you’re currently on the market and you don’t need to sell, your home is probably priced above the market.  A positive outcome is that you’ll be helping those who need to sell, to sell.  Because a real seller’s price will look better than yours, buyers will be drawn away from yours to theirs.

So, if you really want to sell, should you simply price your home low?  Should you set a price then drop it regularly until you sell?  I believe the answer is no!

Recently I’ve helped many real sellers achieve good sales (within a 4 week time frame) by not pricing their homes at all.  How have I done this?

Instead of telling potential buyers what they should pay for a home (ala having an asking price), I’ve simply asked real buyers to nominate what they would be prepared to pay.  I’ve then shared their opinion with others who have expressed interest.  By sharing this valuable information amongst a group of people that have all expressed interest, I’ve been able to A) sell the home to the keenest member of the group, and B) convince them to compete with other like-minded people within the group. 

At the right price level you’ll always find a buyer, or two or three or more.  I love the “no reserve” auction concept as the purest and quickest way to establish a property’s market value. 

A “no reserve” auction is a little scary for most sellers to seriously contemplate.  However, if done right, with appropriate marketing exposure and hype, it’s actually a pretty safe bet for sellers who really need to sell.

If your’e a little less adventurous you can always try a standard “reserve auction” and maintain a bit more control over the sale price.

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Buying and selling on the same market

Posted by Steve Koerber on May 30, 2008

If you’re buying and selling on the same market, this is a great time to do exactly that.  I love to use examples, so here’s a fresh case study (two sales concluded yesterday) to show you how it can be done.

Seller A was a keen seller and priced their home well in the current market.  Some would say they were ‘under-priced’ at $995,000, however they took 7 weeks to sell, so they were probably more ‘well priced’ than ‘under-priced’.

Buyer B bought house A for $975,000 conditional upon them being able to sell their own home B.  A standard escape clause enabled Seller A to accept a better offer (if one was forthcoming) while buyer B attempted to sell their own home.

Buyer/Seller B could afford to offer their own home for sale at a reasonable price.  They had been offered $1million a year earlier, but were happy to accept that the market had dropped.  The key for them was achieving a $150,000 trade-up gap.

After one week, Buyer/Seller B accepted an offer of $800,000 from buyer C.  Buyer C was cashed up and had been searching for 4 months, but had missed out on several homes.  They immediately saw that house B was excellent value and priced to sell.

Buyer/Seller B stretched their trade-up gap to $155,000 to enable them to afford $955,000 for house A.  Seller A reduced their expectations from $975,000 to $955,000 to secure a cash sale and move on with their lives.

This happy chain of events was possible because buyer C, buyer B and seller A all had realistic expectations and were motivated to make a move.

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Why auction in a buyer’s market?

Posted by Steve Koerber on May 1, 2008

If an auction is “correctly” run, the top bidder (even if there’s only 1 bidder) will pay the highest figure they are prepared to pay…not a few dollars more than the next highest bidder. And not necessarily on auction day.

Sellers pay agents handsomely to achieve a sale at the best price available in the marketplace. If a seller is keen and desires a quick result, auction is a fantastic method of determining the value of a home within a short timeframe.

If a house has an asking price of $800,000 and the best buyer over 4 weeks sees value at a maximum of $700,000, in my experience that buyer is unlikely to make an offer at all.

Time is precious to everyone and buyers don’t want to waste their time with over-priced houses.

If the same house has no asking price, is taken to auction after 3 or 4 weeks, in my experience if the higest interest is $700,000, a bid at auction is likely.

In the above scenario, via auction, the value of the home (within the timeframe) is more likely to be established than if it was priced. If a seller is not happy with the established value (best bid), they have the option of remaining on the market with (say) an $800,000 asking price to see if the next 3 weeks or 3 months produces a better buyer.

So why not just price a home correctly from the start? Easier said than done! Especially in a “buyers market”.

Posted in Selling your home | Tagged: , , , | 2 Comments »

Pricing a home to sell

Posted by Steve Koerber on December 19, 2007

I advised one of my sellers that if they really wanted their home sold they would need to revise their asking price downwards.  The actual price had only been set a week earlier, but because other sellers were reducing their prices, I felt my owner risked being ‘left on the shelf’. 

Markets either rise, stay steady or fall.  In a rising market, prices sometimes need to be adjusted upwards to avoid under selling.  A good time to be selling!  In a steady market, correct pricing is relatively easy.  In a falling market competing sellers use price reductions to effectively drag buyers away from your house.  A bad time to be selling!

My seller said she wanted to leave the price as it was.  She argued that if a buyer wanted to buy her house they would ‘make an offer’.  Although this strategy will sometimes hold true, it can also doom a property to many more months on the market and eventually a much lower sale price.  Slower markets make buyers more cautious and they will often only spend their money when they know a home is well priced.  Many buyers’ greatest fear is telling their property-wise friends what they paid, then being humiliated by the response “you paid that much”!  Here’s how it works:

The market was [at best] steady and more likely falling.  The average time to sell a house was increasing.  The asking price was $1.3million.  My suggestion was a bold reduction to $1.2million.  I was suggesting a likely sale price just under $1.2million.  This was based on feedback and facts.  I sensed that she would accept a figure around $1.2million but wanted to maintain her strong negotiating position.  She knew best and the agent just wanted his commission – true but not entirely!

Buyers typically compare asking and sale prices of comparable properties before they offer.  My argument was that if the majority of buyers see value  just under $1.2million, they are likely to make their first offer around $1,150,000.  The problem is that most buyers will put it in the ‘too hard basket’, even if they love the house, believing that they will fail or even worse, offend the seller by making an offer they feel is reasonable.  Whether perceived or real, a $150,000 gap is quite a big one.

In this scenario, the cry from the seller several weeks down the track is likely to be: “but I haven’t even had an offer, nobody has shown interest, so there is no evidence to suggest I need to drop my price”.

The cold hard answer to that is:  “Mrs Seller, you seem to want to keep your house and you’re not quite ready to accept the market”.  Don’t get me wrong, the seller is in control and is quite entitled to hold out for a better sale price.  Not reading the market however is fraught with danger if you actually need or want a sale.  If the market continues to fall there is a strong possibility that the home in the above scenario will never sell, or will sell for much less than it would have if the price had been reduced earlier.  

In a slower market, correct pricing is crucial – get it right and you’ll be on your way. 

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