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Dangers of Overpricing a Property Manan Choksi Regional Director RE/MAX Mumbai Gujarat Maharashtra
In the current market four elements must be in place before you take a listing • Motivated sellers • The right price • A long enough listing period • A large enough commission rate
Market cycle : • Boom period : prices keep on rising, properties get sold in 3 months of listing. • Slowdown: prices keep on dropping, properties get sold in 12 months of listing. • Balanced period: prices are stable and properties are sold in 6 to 8 months. • Right now our markets are in between complete slowdown and a balanced period.
Myths for Seller: • If I list at a higher price, it will get sold at a higher price. • If I list at a lower price, the seller will not buy thinking there is some problem with the property. • I need negotiation room so let me pad up my prices. • Whatever price I list, I will be able to find a buyer in due course, irrespective of the CMA • I can sell late and suffer no financial loss.
Overpricing listings works against your best interests – and the sellers’. It leads to fewer showings, showings but no contract, similar homes selling for less and repeated negative comments.
Number 1 problem with overpricing: • Today buyer searches property online. • Over Priced property gets fewer number of viewing as buyers keep a criteria to search. • So if a 1 crore flat is put at 1.25 crore, and the buyer searches for flats between 85 lakhs to 1 crore, this flat will not be shown. • So there goes a lot of property inquiries.
Number 2 problem with overpricing: • The over priced property will be sold at a lower price than the market. • As the market is getting slower by the day the same 1.25 crore apartment (whose market value is 1 crore) will be sold for 95 lakhs • This is due to various factors including: • Impatience of the seller and the seller’s agent. • Bad impression in the market that the property is on sale for long. • General market slowdown
Number 3 problem with overpricing: • Loss of opportunity due to lack of liquidity. • The seller would have some plan of investing money in another property which may get sold • Sometimes the dream house will get sold out
Number 4 problem with overpricing: • India has one of the highest interest rates today than it used to have in the past. • So once you have 1 crore flat sold 6 month late then @ 9% annual interest you will lose 4.5 lakhs worth of interest income. • More importantly you will sell the property eventually at 95 lakhs.
Time Investment • Those that are selling a home and list it too high will find that it may linger on the market, which drags out the selling process. • The longer a house is for sale, the more time must be invested with showings, cleanings, and negotiations with potential buyers. • This also means that a home will lose out on the newness factor that often helps property on the market get sold.
Less Chance Of A High Final Sell Price • Overpriced homes do not generate as much interest in the market as similar homes that are priced reasonably. • For this reason, they tend to stay on the market longer. The longer a home is on the market, the further down the price will go. • This means that people that price their home too high initially will often wind up getting below market value because the house has been listed for such a long period of time.
Brokers don’t take Exclusivity • For an over priced property the agent doesn’t invest his resources to the full extent • Most brokers don’t take exclusivity for an over priced property • Hence the owner has to do the leg work of promoting the property.
Dangers of overpricing • The right buyers won’t see it • The higher priced buyers won’t want it • Risk of falling market • Tough to Close • Low Ball offers
The Advantages of Proper Pricing • Higher Net Sales • Attract Better Offers • Better Response from Advertising and Sign Calls • Faster Sale • Increased Agent Response • Avoid Your Home from Becoming “Shopworn”
A better strategy: • In such a market some people “under” price the property. • So for example the same 1 crore flat is listed at 95 lakhs. • This results in to more interested buyers and we get a lot of inquiries. • Then the customers don’t negotiate and openly mention that we have got a lot of inquiries we are planning to sell at 1 crore. • The key is to get a lot of offers, once you have that you can increase the price to the buyer who is really interested. • Else just reject the offer!
How to right price? • Search online for comparative prices. • Look for similar property deals in the recent past in the same area. • Look for listing in classified advertisement • Talk to a few agents as a buyer and to same agents at a seller – so you can know the real price. • Talk to a seller who has the nearest comparable property and negotiate.
In a nutshell: • Nothing erodes the value of a property more than over pricing does. • So take full care while pricing the property as it can make or break the deal. • Don’t over price.
