Don’t ignore opportunity costs when selling your home
There’s no denying that now is not the easiest time to sell a home. Property price growth has been slow, the market has been less active than normal, and buyers tend to have the upper hand when it comes to negotiations.
Despite this, real estate agents around the country are reporting record numbers of sellers over inflating their listing prices, their motivation being that if they’re willing to wait, they’ll eventually find a buyer ready to pay the price.
According to Schalk van der Merwe, franchisee at the Rawson Properties Helderberg Group, this approach is doing sellers a huge disservice in more ways than one.
“What a lot of sellers fail to factor-in, or factor-in incorrectly, is the opportunity cost of certain choices,” he says. “It can be very tempting, for example, to choose an agent with the highest valuation or insist your agent lists your home above their recommended price point, but the opportunity cost of doing so can be far higher than you may have expected.”
According to van der Merwe, the biggest opportunity cost of overpricing a property is not just that it won’t achieve the inflated sales price, but that it’ll likely sell for below market value as a result of overpricing.
“Today’s buyers can spot a rip-off from a mile away and they have no time or patience for overpriced listings,” he says. “As a result, these properties tend to sit on the market indefinitely, getting zero attention and developing a negative reputation for apparent unsalability. Sellers are then forced to drop their prices drastically to overcome these negative associations – far more than the normal price adjustments you see happening – and typically end up selling for below their true market value in the end.”
The difference between this eventual sales price and the price they could have achieved if the property had been listed at a market-related price point is not the only opportunity cost sellers are unwittingly paying, however.
“Delaying the sale of your home, or dragging out the sales process by overpricing, can introduce a number of other opportunity costs to the transaction,” says van der Merwe. “From extending upfront costs like property maintenance, security, insurance and rates and taxes, to losing out on the chance to buy another property or missing out on earning interest on the proceeds of your sale, selling slower than absolutely necessary comes with a surprisingly high price tag.”
By not factoring these costs into their decision-making process, van der Merwe says sellers may be seduced by the idea of a higher sales price only to end up making far less off the transaction than expected. In this, he says the advice of an experienced – and honest – real estate agent can mean the difference between maximising returns and maximising disappointment.
“One of our key responsibilities as professional real estate agents is to assist property owners in making the best possible decisions for their circumstances,” he says. “When it comes to a sale, that includes helping them weigh up all the costs and opportunities to make informed choices about how to proceed on things like pricing.
“As agents, we can never guarantee an exact price from a willing buyer, but our recommendations are always designed to achieve a sale in the least possible amount of time, with the least inconvenience and highest sales price. In striking this balance, we can minimise any opportunity costs to our clients, and make sure they walk away with the most profitable outcome possible – even if their initial listing price was lower than they originally expected.”
Not all real estate agents have the same approach to selling property, however.
“There are agents who would rather promise the earth to get the sole mandate and then disappoint their clients when the sale takes forever and pays bottom dollar,” he says. “It’s a lot more difficult to win a client’s trust by presenting a realistic picture that accurately manages expectations. If you’re not sure of your agent’s motivations, ask them to back up their valuation with a comprehensive comparative market analysis, and get some word-of-mouth referrals from sellers who’ve used their services in your area.”