Pricing strategies all-important to success
How many times have we read in the business media that property sellers still tend to overvalue their properties? And yet, says Anton Du Plessis, CEO of Vineyard Estates, some 30% of sellers still succeed in setting too high a price.

“This,” he said, “can be very frustrating to the experienced agent who over the years has honed his comparative market analysis skills and knows to within a few R100,000 exactly what the market can afford – but there will always be one or two sellers who do not hear what we say.”

If 30% of homes are overpriced, does this mean that 70% are accurately priced?

“On my stock lists,” said Du Plessis, “that is usually the case – with this proviso, that perhaps 10% are priced exceptionally competitively and should be snapped up.”

The average seller today, says Du Plessis, will try to add 10 to 15% to the price he expects to get knowing that buyers will want to negotiate the price down, but in the case of the 10% accurately priced homes referred to above, the sellers, rightly, will usually not accept more than a 1 to 3% reduction.

Occasionally (although never at his agency), says Du Plessis, the seller will set a totally ludicrous price, say at R30 million for a home worth R10 million in the hope that an inexperienced buyer will then offer him a price above the home’s true value.

“Whilst an agent is bound by the Estate Agency Affairs Board to act in the seller’s interests, he is also supposed to act ‘fairly’ to all parties. I question the ethics of an agent who knowingly completely overprices a property and offers it to the consumer as fair trade,” said du Plessis.

Faced with the fact that many seller’s overvalue their homes, what options are open to the agent after he has done his valuation – bearing in mind that it is all too easy to lose a client who does not accept an accurate valuation?

Du Plessis says that the agent is faced with three choices. He can either go along with the client, accepting his price, he can break off with him leaving him to try his luck elsewhere or can try to talk the seller into accepting a price that is perhaps only 10% to 15% too high knowing he will then “slog” for three to six months taking offers below the list price. Alternatively, the less-than-ethical agent will take on this house at the inflated price, never intending actually to sell it, but to use it to sell other realistically priced homes which may appear to the buyer to be a bargain in comparison.

“Estate agency work is stressful,” says Du Plessis, “and none of us like to lose a client to a rival agency where dubious ethics allow them to overvalue to get a mandate.”

At Vineyard Estates du Plessis has worked out a system for dealing with sellers who overprice: the agent’s commission is directly related to the accuracy of his valuation. For example, if the agent values the home at R5 million and gets an offer of R4,8 million, he will be paid a full 5 to 6% commission. If the offers come in above that figure he will charge no more but if they come in at 10% or more below his valuation (and are accepted) the agent reduces his commission to 2%.

“This system is not acceptable to many agencies, the reason possibly being that they know they are overvaluing to get mandates – but when adopted, it cures the overvaluing issue at once,” says Du Plessis.

Du Plessis says that in the long run, an open, transparent valuations strategy will build up the reputation of the agent and it is partially to this that he attributes the fact that he himself has been able to sell at least one house per month for the last eight years.

“It comes as a surprise to many to find that I am busier in this quiet market than I was in the boom market of 2005 to 2007. Today’s buyers take longer to make a decision but they increasingly look for those agents able to value accurately. The agent, for his part, will often devote more attention to realistically priced homes and those agents who strive for accurate valuing tend also to be the most successful.”

Article by: www.vineyardestates.co.za