Assumptions and arithmetic: 5 mistakes vendors make when pricing their home
Speaking on episode 537 of GPTV, Gary Peer and Phillip Kingston outlined the biggest mistakes vendors make when pricing their property. From seeking ‘the price on the street’ to relying on arithmetic formulas, these are the five most common pitfalls the pair sees vendors fall into – every day.
Which ones might you be making? Let’s take a look.
1. Chasing the ‘price on the street’
The first mistake many vendors make when pricing their homes?
Assuming that, just because a nearby house sold for a certain amount, their home will, too.
It’s that established, conventional logic that says, ‘Well, Bob and Trish down the road sold their home for $4 million in 2017. Surely mine should go for a similar price – if not more?’
Gary explains what makes this mistake so egregious. ‘Often, people automatically think they’re entitled to a particular price, because of what’s sold on the street before. But this isn’t the best barometer of what a home will fetch.
‘And price on the street some time ago doesn’t necessarily dictate what a property is worth in today’s market.’
2. Relying on the ‘per-square-metre assumption’
Another pitfall vendors all too often fall into? The ‘per-square-metre assumption’.
Like the ‘price on the street’ mistake, this phenomenon takes place when a vendor compares their home with another one that’s sold nearby.
Rather than looking at that home holistically, though – at the market, the property type, or the home’s features – the vendor zeroes in on one thing, and one thing alone: the size.
This assumption says, ‘My home must be worth $X per square metre, because there was another – smaller – house sold three streets away; and at a much higher per-square-meter rate.’
Size does matter. But ultimately, it’s only one of the ingredients that feed into a home’s asking price – not the whole recipe!
3. Comparing their home with a different property type
As we’ve seen, there are a couple of familiar themes emerging here:
- Vendors fixating not on their home as a complete package or unit, but on one aspect of it.
- Vendors comparing one aspect of their home to one of a nearby home that recently sold.
Well, this next vendor pricing mistake shucks that formula. It involves a vendor not comparing like for like, but attempting to calculate their home’s price by comparing it with… an entirely different type of home!
It’s when a vendor says, ‘Well, that apartment down the street sold for $2 million; that villa on the corner went for $4 million. I’m selling a house – so it must be worth $6 million.’
‘It’s important to compare apples with apples, and oranges with oranges,’ Phillip says.
Gary nods. ‘And the times with the times!’
4. Falling back on the arithmetic
Another piece of conventional wisdom you’ll hear when a vendor values their home is this:
‘I bought it 10 years ago for $2 million. Property prices go up by 3% every year. Surely it must be closer to $3 million now?’
Well – not always.
‘Applying an arithmetic formula based on history doesn’t always translate to every decade,’ explains Phillip.
So instead of using time as the main metric to value their home, vendors should simply make time – to sit down with their agent and discuss their property’s worth in today’s market.
5. Paying heed to ‘the need’
The final mistake vendors make when pricing their property?
What Gary and Phillip dub ‘the need’.
It’s the sentiment that states, simply, ‘I need to get $1 million.’ This assumption isn’t based on appreciation over time, nor the property type, the square metres of its floor plan or what the villa down the road sold for.
Put plainly, it’s motivated by ambition – a vendor’s unshakeable desire to meet the specific, pre-defined figure seared into their mind.
‘It’s generally when the vendor is selling up to move to Sydney,’ Gary explains. ‘In these cases, we always encourage them to make sure the person whose home they’re buying up there isn’t moving to Tokyo – or to Beverly Hills!’
So what is the best way to accurately price your property?
It’s easy to appreciate how a vendor could add ‘sentimental tax’ or ‘hope tax’ to their property’s price.
‘It makes sense in a way,’ says Gary. ‘The family home is often at the heart of our family stories and the epicentre of our finances. But this is even more reason to take the emotion out of it.’
And what’s the easiest way to do that? Let the professionals take a look.
An experienced agent can take all the necessary factors into account and give you a clear and realistic evaluation of your property.
‘It’s always better to get a logical and analytical assessment from an expert,’ Gary promises. ‘It’ll make for a smoother process when you decide to sell. Financially and emotionally.’