This is a guest post by Ross Taylor.
Interestingly, not much has been written on the topic of pricing and presenting your home in such a way as to attract multiple competing offers, with a view to generating a price at or near the top of the range for comparable homes. We recently discussed this subject with Boris Kholodov, a successful Royal LePage realtor, who focuses his practice on downtown and central Toronto. Boris shed a good deal of light on the subject.
Ross: Do you think there are more homes attracting multiple offers now than say any other time in the past five years?
Boris: No, I think it has been pretty consistent. However I often see realtors and their clients attempting the strategy on homes that are not suited to it, and the result can be disastrous. Every home is unique, and each demands its own pricing strategy. What works on some homes would be foolish in other cases. What if you lowball your asking price and set a deadline by which to receive offers, and yet no offers are forthcoming? Now you have established a price for your home that is all wrong for your actual objective, and it could cost you tens or even hundreds of thousands of dollars.
A good realtor must recommend the most appropriate pricing strategy for you to get the best result. For example, if I were listing a downtown condo worth more than $2 million, I would not advise a ‘low ball’ pricing strategy designed toattract multiple offers. That kind of property is likely to sit on the market for weeks before generating any interest, so it is highly unlikely that would work. But if I am listing a row house (worth say $700,000) on a desirable street in central Toronto, I would expect the strategy to be very successful.
Ross: What exactly is the strategy?
Boris: Well, the ideal subject property is in high demand and not readily available on the market. And perhaps the last comparable home sold for more than the asking price. That tells me there are interested buyers waiting for new listings. I would determine a range for the fair market value of my client’s house, and I would suggest we price the home at the bottom end of the range. I don’t suggest pricing below the bottom of the range – stay at the bottom, and let the market take its course.
I suggest listing the home via MLS on a Wednesday, and advising buyers we will be reviewing offers no later than the following Monday, or maybe the Tuesday. We want to allow in everyone who may be interested in our listing before we begin to accept offers. I don’t like the “underprice and take offers immediately” strategy some realtors deploy. I want to generate as much interest as possible for my client’s listing, and I want all potential buyers to (a) catch wind of the listing and (b) have a chance to go through the property – which often happens on the weekend. But I don’t want to give everyone too much time to change their minds or go elsewhere.
Ross: It still seems like not much time for buyers to react aggressively.
Boris: That’s why it’s very important to provide prospective buyers whatever information they might need to make an informed, quick decision. The seller should have a professional home inspection done and, if available, a copy of thesurvey for buyers to peruse. Copies of utility bills should also be on hand. And if we are selling a condo, we will have a condo status certificate too.
Ross: I guess this is important because you want ‘clean offers.’
Boris: Yes, although some realtors have not yet figured this out when assisting their clients purchase a home that is favorably priced; if you are a buyer in these circumstances your best chance of success will come from an offer that has few, if any conditions. That means you should already know if you have mortgage financing lined up. From the inspection report, you should be able to estimate how much money you will put into the property to refresh or renovate it up to your standards. Whereas a typical home offer will have conditions such as five business days to arrange financing, conduct an inspection or an appraisal, this is not likely to work with one of my listings if it has been priced to sell with multiple offers.
Ross: You didn’t mention how much they should offer.
Boris: This is where a good realtor can really earn her commission. She should be plugged into the sales process as much as is permissible. She should gauge how many offers there are, and how the home is priced relative to the fair market value range. She should ask herself, if I were the listing agent, what price would I expect to realize for my clients?
I usually wait to see how many offers are registered before guiding my client in price – I like to sit back and assess the competition, and come in after I have a clear picture of the situation, knowing how many offers have already been submitted. Your realtor will give you the best advice she can, based on all the factors and variables, but it is your decision, not hers. Be rational, and don’t get caught up emotionally in the process. And understand right from the get-go that the asking price was simply there to attract your attention. You have not discovered an underpriced gem. Chances are the property will sell for considerably higher than the listing price.
Ross: Can you make this pricing strategy work even if there many homes like yours readily available on the market?
Boris: Yes, it can work quite well. For example, suppose you are selling your downtown condo which is worth around$315,000, and there are many others already on the market. You might list yours at $299,900. This attracts the interest of buyers whose budget ceiling was $300,000. Chances are your condo will look that much better to these buyers than the other properties they have been considering, and you could well attract a lot of interest. Such buyers will often make a mental adjustment and work hard to get themselves into your home, which is of course a bit nicer than anything else they have seen. They will not often stop and say to themselves, “wait a minute, if I am now prepared to spend $315,000 to win this beautiful condo, maybe I should be looking at others in that price range.”
Ross: All good advice Boris. Any parting thoughts?
Boris: This pricing strategy came into being as a means to prevent the first person to view a new listing from scooping your home before everyone else had a chance to see the property. Delaying the acceptance of offers allows more viewers, and more potential buyers.
Selling your home can be a stressful, costly, time consuming process. It is so important to have a top notch marketing strategy for your home. If your realtor strongly advises that lowball pricing is not for you, you should listen, or at least get a second opinion. If a pricing strategy designed to attract multiple offers works, you will sell your home in a very short period of time, with minimal disruption, and at a price that is assuredly at the top end of your expectations.
Over the years, Ross Taylor has been a stockbroker, fee based financial planner, income tax specialist, mutual fundscompany executive, retail banking VP, tech company executive, and has raised capital for small to mid-size businesses.These days he is a licensed mortgage broker agent and registered credit counselor, and still provides advice on mostpersonal finance matters. He writes a blog at www.askross.ca