May 28, 2019
When you’re thinking about listing your apartment for sale, the most important thing is obviously price. But there are two prices – the asking price and the eventual sales price. If you don’t set the right asking price, you will sell for less so it’s critically important that your strategy matches the market.
First Things First – How Much Is Your Apartment Worth?
What Causes Previous Transactions and Current Asking Prices To Differ?
What Are The Strategies For Setting An Asking Price?
Why Are Brokers Recommending Such Different Asking Prices?
So Which Asking Price Strategy Is Best?
Before considering the price at which you should list your apartment for sale, you need to estimate the price at which your apartment will actually sell. This will serve as the anchor for your strategy. Afterall, you can’t decide to list at a high or low price before you know what a high or low price is.
How do you do this? By looking at previous transactions and current listings. Why both? Because each dataset provides different information.
Previous transactions are more important because they are actual transactions with actual buyers and sellers. In each, the buyer and seller agreed the price was fair. Recent buyers and sellers are going to be similar to today’s buyers and sellers so their decisions are very insightful.
You also want to consider current listings because this is your competition. If you’re selling a one bedroom and there are other one bedrooms for sale in the building, you can be sure buyers will also check them out. That being said, current listings are less reliable because you’re looking at asking prices, not actual prices. Asking prices are set independently of buyers. It’s simply the seller throwing a number out there.
If you’re trying to sell your studio apartment and there’s another across the street asking $10,000,000, is your apartment worth more because someone is asking $10,000,000? Of course not. Asking prices should be anchored in reality but that doesn’t prevent sellers from asking whatever they want.
The simple answer is something needs to change. Both datasets should generally agree unless the market cools or heats up.
Think back to the fall of 2008. Previous transactions became irrelevant after Lehman Brothers went bankrupt. The market softened dramatically overnight. Alternatively, in the hot high end condo market of 2014, sellers didn’t care much about previous transactions. They were convinced the market was going up every day so historical prices were too low.
During changing market conditions, transaction volume usually drops substantially. Either buyers or sellers will optimistically hold on for previous market conditions. Unless they have to sell (like in 2008), sellers can try to wait out a soft market. Alternatively, in a red hot market, buyers will point to previous transactions and expect the market to correct. Eventually one side gives in and transaction volume recovers.
There are three options for setting an asking price - low, in-line or high - and no right answer. Just like our hypothetical $10,000,000 studio seller, you can set it at whatever you want.
If your asking price is too low, potential buyers may assume something is wrong. Buyers browsing online may think the pictures are unrealistic, there’s a problem with the building’s financials, a new building is going up next-door, etc. Even if these are not true, by starting off very low, you are also anchoring buyers’ expectations low. You may end up getting a ton of interest and a “feeding frenzy” but it’s a gamble.
If you list for a modest discount, the process is more manageable and less risky. You can generate interest early on, get a few offers and hopefully sell for more than ask.
An asking price in-line with the market analysis is pretty straightforward. You’re asking a fair price and the listing should get a typical amount of interest from buyers. Along with pricing a few percent higher than a fair price, this is the most common pricing strategy.
An aggressive (i.e. high) asking price usually doesn’t work as planned because it deters real interest. A studio buyer is not going to visit the $10,000,000 listing. Even in less unrealistic situations, buyers often assume the seller isn’t serious. Buyers may think the seller is hoping for a sucker but they won’t be that sucker. Usually aggressive asks do not sell and remain on the market for a long time, ultimately damaging the listing.
This is a great question and something that can tell you a lot about a broker’s motives. If you’ve requested valuations from a handful of brokers and one is significantly higher than the rest, the best thing to do is simply ask, “Why?” Whatever the reason, it’s important that there is a reason. If the broker can’t convince you of the premium, they won’t be able to convince a buyer. You can also flip that around - ask for the analysis behind the lower estimates as well.
Without justification, the goal of a high valuation is likely just to get the listing. That gives the broker a chance to make money. With a high asking price, a buyer could come in, fall in love and buy it on the spot. More realistically though, months will drag on without any serious interest, the broker will slowly lower your expectations and your apartment will sell for less than if it was priced appropriately from the start.
Like most questions in real estate, the answer depends and it mostly depends on the market. One thing we can say for sure is setting a high asking price in a weak market is a bad idea. Buyers will be way too patient and have way too many choices to seriously consider your listing.
In a normal or strong market, you have more flexibility. Buyers get anxious and might overpay so pricing high could work.
In general though, Yoreevo favors realistic asking prices that are underpinned by a market analysis. Buyers will be doing the same market analysis and if you’re on the same page from the start, there’s a better chance a deal gets done.
If you are thinking about listing your apartment for sale, please contact Yoreevo and we will conduct a thorough market analysis. We’ll then walk you through it and explain why we view the recommended asking price as appropriate for today’s market. Best of all, we’ll do it all for a 1% listing fee!