There are five million people crammed onto this island. By that logic, selling a house should be easier than selling a life boat on an Italian cruise liner (way to go, Concordia). Unfortunately, we seem to take it all for granted. If everyone’s desperate for room, then we ought to triple the asking price on anything that provides breathing space, right? Well apparently, there are limits even here. In this article, I examine how a pricing method can make your house buy-proof:
Overpricing: A Top – Down Pricing Strategy
When selling anything, there are two approaches to determining price: bottom up (underpricing first) and top down (overpricing first). The idea is to start with something too cheap or too expensive, and gradually adjust the price until it fits the market.
Most sellers and property agents use a top-down approach. They start with high expectations, then gradually lower it as prospects turn away. Kind of like my standards in a cheap bar. This is a favourite approach because it endears the agent to the seller: Between an agent who says she can get you $1.1 million, and an agent who says $900,000, which are you more likely to pick?
But the truth is, overpricing can be more damaging than underpricing. That’s because overpricing:
- Closes off prospects
- Is too slow
- Discourages competent agents
- Causes stagnation
- Causes financing problems
1. Overpricing Closes Off Prospects
There’s actually less to fear from underpricing. If you’re getting a lot of eager respondents, you can decide your price is too low and nudge it upwards. What’s the harm? Yes, some prospective buyers will stomp off in a huff, but that’s okay; there’s a line behind them.
If your asking price is too high though, you’ll get very few prospective buyers in the first place. Buyers who see high prices aren’t thinking “I’ll go there and negotiate.” They’re thinking “Holy [email protected]#$, this is the only plot more ridiculous than Transformers 2. Forget it.”
Remember how many listings there are on the market. Don’t assume that buyers examine each one in close detail, or know how negotiable your price is. They have a budget, and if you’re beyond it, you’re out. There are no further enquiries, no e-mails, and no stopping by to take a look.
2. Overpricing is Too Slow
With overpricing, you start high and go lower. The problem is, prospective buyers don’t have a lot of time.
Most are looking to buy just as their rental lease ends. The others aren’t too happy about blowing half their income on a hotel room, or crashing in a friend’s three-room flat. So you go ahead and gradually lower your price; in the meantime, they need a roof and a bed. By the time your price is reasonable to them, odds are they’ve bought some other unit.
Incidentally, think about how it looks to buyers when you lower the price. If you went all the way from $1.1 million to $700,000, then forget about getting rid of that smell. You know, the smell of desperation that now permeates your clothes and house. The Singaporean assumption is that something is seriously wrong; why else is the price dropping so much?
3. Overpricing Discourages Competent Agents
You know what sort of agents only care about a single huge commission? The dumb ones. Because a competent agent knows she can sell three reasonably priced units in the time it takes to sell one overpriced house.
So if an agent is quick to give you outrageous prices, start doing some background checks. Ask how they plan to convince buyers of that price. If three or four other agents aren’t as optimistic, there must be a reason; the last thing you want on your hands is an optimistic amateur or hard-selling fraud.
And if you keep insisting on sky high prices, competent agents will walk away. Those happen to be the best people to sell your house for you, so think hard before disregarding their advice.
4. Overpricing Causes Stagnation
This is related to point 2. Top-down selling is well and good in theory, but it’s slow. And when property sits on the market for too long, it becomes harder to negotiate for the desired price. See, when buyers notice the property has been around a while, they’ll realize you have trouble selling it.
And that means you’ll settle for a lower price, right?
Nah, don’t bother answering. It doesn’t matter what you say, because Singaporean buyers assume the answer to be “yes, that’s absolutely true, and you’d be stupid to believe I’ll hold on to my price.” Likewise, assumptions are made about why the property hasn’t been sold. There must be issues with the plumbing, lights, location, etc. which is why no one is buying the place.
Be prepared for more suspicious probing by the buyers.
5. Overpricing Causes Financing Problems
Most Singaporeans require some sort of financing to buy a house. In the event they get a home loan, the size of that loan is pegged to the valuation.
If you overprice your house, and it’s significantly above the valuation, it becomes unaffordable to the buyer. No matter how much they like it, you won’t be closing the deal: the bank isn’t lending them the money, and that’s it. In these situations, resort to practicality. How much above the valuation are you asking for, and what are the odds that a prospective buyer has that much ready cash?
If the chances are slim, then your overpricing will be blocking your sale for a very long time.
Do you prefer to overprice your home still? Comment and tell us why!
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