From a Seller's Perspective. Pricing Strategies.

Tuesday Nov 09th, 2021

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Once you have decided to sell the most important thing to consider is the current type of market. Buyer's market, there is more choice, more inventory, and sellers are often open to making deals as it takes longer to sell and seller fatigue sets in.

A neutral market, pretty even in the number of buyers and sellers. Marked by sales at market value, a medium time on the market. 

Right now, it is an extremely competitive Seller’s market. Simply put there are many more buyers than sellers.  The sensation of the market as reported by the media is not doing buyers any favours. Buyers are constantly reminded that prices are rising, that mortgage rates are rising, that there is a housing shortage. Who wouldn't feel panicked by all the information overload by people who write stories to sell advertising? That's right, journalists, (whether print or online) hype stories about real estate as real estate is what is top of mind with most Canadians. If you own, you want to know if your equity is growing, if you are a buyer, you want to know the latest trends. 

Today’s buyer’s choices are limited. From a buyer’s perspective, this really sucks. They are faced with the challenge of paying the highest price now or waiting with the hopes that prices will stop rising and more properties will become available. The other dilemma they face is rising interest rates, which decrease their buying power. 

In this tremendously strong seller’s market, the popular strategy is to list a property at a price slightly under market value, hold off offers for a week or less, and hope you get multiple offers.

Why not just price it at market value, to begin with, and let it sell?

Short answer: it doesn’t work as well as any of the other options. 

There are four ways to price a property.

Under price. Likely to get multiple offers, although there is a chance that the right buyer doesn’t show up on offer night. Fear of competition is a real thing and can stop some buyers in their tracks as they don’t want to compete. I smile at them and say, “well we will have to find you a house that no one else wants.”

On the money. Priced as close to the perceived market value. Yesterday’s sale becomes quickly irrelevant.

Out there. Priced a little above the recent comparable sales, with the hope that the market rises to the price.

Way out there. We all know of properties that the list price makes you laugh. Not a good strategy, even though people still do it.

What is the best choice?

It all depends on the market. Right now, number 1. would be the way to go.

Overpriced and no one looks.

Under-priced and the most available qualified buyers look. Some of the offers submitted will have no chance - about 20%,(these offers are important in that they help increase the number of offers often encouraging other buyers to increase their offers), about 60% are what normally would be considered good offers, it is one in the top 20% that will prevail. T

From a Buyer's perspective. 

On offer day.

  • Buyers know they are not able to negotiate, as they are made aware that there are other offers, as well as the number of other offers.
  • They know they have to offer their absolute best, afraid that a higher offer will be submitted and accepted.
  • In some cases, buyers have failed in other bids to purchase a home so they are ready to pay top dollar to get that home.

What do Sellers really want?

It isn't always about price. Ideally, an acceptable offer will;

  • have the ideal closing date
  • have absolutely no conditions
  • have the deposit either a certified cheque or bank draft accompany the offer.
  • be the highest price. 

I have seen cases where a lower price offer has been accepted because the deposit was with the offer. The seller knows they have a done deal. 

This is slimy, but there are cases of buyers submitting offers on 2 or more properties at the same time with the hopes that one of them will be accepted, if more than one is accepted, they simply pick their favourite one, not submit the deposit on the other one, effectively voiding the offer. 

Using this pricing strategy over any of the others usually means you will get all four of the above-mentioned. This is not likely to occur using any of the other pricing strategies.

If this looks to you like all the power is in the seller’s hands you would be correct. It is designed to do just that.  It works. It is extremely frustrating to buyers and their agents, it is a huge pain in the butt and it wastes time. 

These market conditions will not continue forever. It doesn't look like it isn't going to change soon, the demand for real estate will remain strong, given the lack of new housing, the increase of new immigrants(they have to live somewhere), and the gradual increase in mortgage lending rates. Here is an interesting article I found in the National Post concerning today's market.

“The Only Constant in Life Is Change.”- Heraclitus


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