What determines a property’s asking price?

There are many criteria that Owners think are relevant in setting the asking price of their homes. Many base their price on what they need for the purchase of their next property, or what it has cost them to do their renovations. But are any of these criteria valid in the marketplace? If Owners are moving to a more expensive suburb or town, or if the renovation included recently-installed state-of-the-art appliances and finishes (“we had planned to stay here until the kids left home but . . .”) the answer is probably no. After all, neither of these pricing strategies has taken into account the state of the market. Owners who insist on an arbitrarily set figure often have the opposite effect from what they intended. If the figure the Owners has in mind is not the true “market value”, the property is unlikely to sell at that price. By telling the agent to discourage purchasers who are not prepared to “go that high”, the risks missing out on a sale; in amongst the Buyers that are turned away may be the one who, in the heat of negotiations, would have paid the most. Just as Owners sometimes come down further than they initially intend to in order to sell their property, so many Owners actually extend themselves more than their first stated price range in order to secure a property they really love.

Arbitrary pricing may work in a rising or hot market but the more the market levels out, the more important it is to be guided by market forces, as the property could go down in value the longer it stays on the market.

Another disadvantage of over-pricing in a cooling market is that if buyers decide at the outset that their highest price isn’t in the ballpark, they often decide it’s not worth making an offer. Without that initial offer it is impossible to negotiate to a higher position. Owners sometimes overlook the importance of the negotiation process in achieving the highest possible price.

It is always a good idea to include a ‘negotiating factor’ (an extra percentage added to the projected sale price) to allow yourself room to negotiate down to the market value. But the asking price should always take into account the prices being achieved in the current market, if the highest selling price is ultimately to be achieved.