We’ve all been told that negotiation is key when buying a home. When on the hunt for your dream property, it’s common to think that the price you see online is not the price you’ll end up paying for the home in question. But what does this mean for sellers? Are home valuations – especially those done by estate agents – accurate?
To answer this question, we need to understand the incentives that influence all the people involved. For the seller, getting the highest price is the most important objective. For buyers, getting the lowest price is usually the objective. And estate agents? Well, their objective is to get the house sold and to keep up their reputation.
While only 2% of sellers received their initial asking price for properties sold during 2019, estate agents are incentivized to give the best valuation that they can. If they price your property too low, then you’re unlikely to choose them as an agent and, even if you do, you’d probably be unhappy with the outcome. On the other hand, if you price the property too high it simply won’t get sold.
In this way, agents play a mediating role between the buyer and the seller: the incentives that drive agents’ decisions are ones that prioritize good, accurate information. While slight over-valuations can be a useful tactic to account for negotiations, experts in South Africa are arguing that the current market doesn’t need to use this strategy: buyers know the value of homes and are willing to pay the right price for the right property.
Despite this, there’s never a guarantee that you’ll get your asking price when you sell. The property market is dynamic, especially now while interest rates are low and likely to change often, and there are too many factors that can impact the selling price of a home.
So, what do agents look at when they give you a valuation? Chances are, they’ve started the valuation process long before they set foot in your door. While your neighbourhood, local schools and access to main roads will all influence the price that agents think you can sell for, they have access to far more information than that. Agents will look at recent sales for properties like yours in your area and do a close analysis of how long these were on the market, how much they sold for, and what the asking price was.
They’ll also look at the direct competition to your home and look at what’s currently on the market. If there’s plenty up for sale right now, your valuation might be lower because buyers have several options that they can choose from. If homes have been selling slowly in the area, this will also impact the valuation that they give you. On the other hand, if sales have been fast, there are limited homes on the market now and the agent has received plenty of requests for homes in your area then the chances are that you’ll be able to get your asking price, so long as it’s reasonable.
While you should do your own research on your area and selling prices for comparable homes, it’s important to realize that a local agent who knows the area will have far more information about the market than you are able to find online. And any good agent will take this information to give you an accurate estimate of what they can sell your home for: for most, this is simply because they’re honest, hardworking folk who want to do their jobs well. And for the rest, well, it’s still in their best interest to do so.
Author: Pierre Rousseau (Founder/Principal PropertyTime)