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The psychology of pricing: 6 myths preventing your property sale

04 Nov 2019

Although improving, the South African property market remains largely favourable for buyers while sellers have to compete for the limited pool of buyers in a, generally still, overstocked market. While pricing is always important, it is especially so in this market.

Since the listing process starts with the asking price, the seller will often think that setting the price at the highest possible level will get them better offers closer to the desired price.

This is according to Samuel Seeff, chairman of the Seeff Property Group, who says any property sale involves competing interests. “Firstly, that of the seller who wants to achieve the highest possible price and secondly, the buyer who wants to pay the lowest possible price.”

Since the listing process starts with the asking price, the seller will often think that setting the price at the highest possible level will get them better offers closer to the desired price, he notes.

In reality, Seeff says there is simply no evidence that shows a higher asking price will result in a higher selling price, and it actually has the opposite effect by “putting buyers off” from the outset. There is a psychology to pricing and the consumer’s mindset about price can make or break a sale.

“A New York Times report states that - in a market where buyers and sellers circle one another warily, each certain that he or she is being taken advantage of, no matter what the conclusion of a deal, the asking price of a property is rarely a straightforward reflection of comparable values."

“It says that sellers often start at a point which equates to ‘wishful thinking’ and even when the seller and agent finally reach a point of consensus, it is often still slightly above the ideal price level."

Setting the price at the right level can mean the difference between getting a quick offer and drawing little interest

“Buyers on the other, simply love a bargain and will always look to deconstruct the price, not just in terms of how it represents fair value, but they will actively look for vulnerabilities.”

He says in this climate, the role of an experienced local area agent becomes pivotal as they know the area, what is on the market and what has sold and for how much. “With their eye on the market and their nose to the ground, such an agent will offer guidance to ensure that your property is not standing out like a sore thumb with an out-of-kilter price, but that it is also not competing at the same price level as every other property on the market.”

Setting the price at the right level can mean the difference between getting a quick offer and drawing little interest, which may result in having to drop your price to get an offer.

According to Seeff there are many pricing myths that may stand in the way of a successful sale. He highlights six of the most common misconceptions:

1. A high price leaves room to negotiate

This is a weak strategy which will have the opposite effect. Today’s buyers are informed and aware of market conditions and prices. They will simply overlook an overpriced property in favour of those which are correctly priced. This could mean that you may have to make price cuts that in turn could attract bargain hunters rather than serious offers.

2. The news says the market and prices are up

With so much written about the market, it’s easy for sellers to get caught up in the hype of rising prices. Many sellers also look at the property portals, where some listings may be overpriced, so it is best to trust your agent who will use local area sales to advise on the appropriate asking price.

See what similar homes in your area have
recently sold for, click here

3. Renovations and improvements will get a higher price

Renovations do not equal a higher price. While some improvement of an older property may well be advised, you should take care not to overspend and overcapitalise. Always consult a local agent and do a ‘cost versus value’ analysis before embarking on renovations.

4. A quick offer means the agent priced too low

Not at all, the objective of selling is to get a good offer as quickly as possible. Receiving an offer soon after listing means that the property is on the market at the right price to attract buyer interest. If you appoint a credible agent, they will not risk their reputation on giving you incorrect pricing advice.

5. Let’s wait for a better offer

Research has shown that the first offer is often the best as it is based on the value that buyers attach to the property. Sellers tend to be sceptical at first, thinking that the buyer is trying to make a quick bargain buy. If it is a fair offer, you should always consider it. There are no guarantees that another offer might come along, especially in this market.

6. Reducing the price will entice bargain hunters

While no seller or agent would want to be in this position, there may come a time when it seems that the market is just not reacting to a particular asking price. In such instance, if you need to, or are motivated to sell, your agent may advise a price drop. Remember, time is money and the longer your property is on the market, the more it costs in bond repayments, utility costs and so on. Lowering the price could even result in a better offer.

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