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10.9.2020

Should You List Higher to Leave Room for Negotiations?

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No matter whether you sell in a sellers’ market or a buyers’ market, the last thing you’ll want to do is leave money on the table. After all, you home is one of your largest assets and it should pay you back in full.

 

The question that sellers often ask is this:  Should I price my home at a list price higher than my target sale price to leave a little room for negotiations?

It’s a sensible question, since almost every other commodity, product, or service works that way.  With real estate in a strong sellers’ market, though, that pricing strategy can become a liability.

 

Here’s why:

Buyers are extremely well-educated.  The vast majority of them start their search online, learning about comparable properties, neighbourhoods, and even some real estate legal matters.  (This is a very good thing!)

By the time they reach out to a buyer’s agent for representation, they have been watching the market for some time. Most are probably aware of current conditions, at least to a certain extent.

Since well-priced properties are currently selling in multiple offers, and often well over the asking price, a large number of buyers are actually narrowing their search. They will ONLY look at properties listed below their actual budget.  They expect to negotiate in reverse – as counterintuitive as it seems – competing with other qualified buyers and bidding up the house they want.

Let’s say you, as a seller, want to settle on a price no lower than $500,000. You reason that you want to list at $515,000 to leave a little room to negotiate.  If you do this, you will actually miss out on a pool of buyers who refuse to look at anything listed over $499 000 because they believe they cannot afford it. (For the record: We agree – this is complete insanity, and we are not saying this is how it should be, just stating that these are the current conditions.)

 

Cater to an online audience

Another factor to consider as a seller is the way buyers shop.  Since most of them start their search on Realtor.ca, it’s important that we work with the right categories on that site.

Visitors to realtor.ca must set search parameters.  For properties under $500,000, they show up in $25,000 increments – that is, you will select properties between $450,000-475,000, or $300,000 -$325,000, etc.  Properties worth $500,000-1,000,000,are sorted in $50,000 increments, and over $1,000,000, it’s $100,000.

For a buyer to see your $500,000 house, if they are shopping within their budget as most are doing right now, you cannot put it in the next price bracket by listing at $515,000.  Instead of leaving room to negotiate with your perfect buyer, you will have actually set it up to filter your property right out of their online search.  They won’t even see your listing!

Even though the market is white-hot, over-priced properties still sit on the market much longer than well-priced ones.  The only danger in the current conditions is in over-pricing.  A property that has been for sale for longer than is typical will raise red flags.   Buyers (and their agents) will wonder what’s wrong with it.  This sets you up to face resistance from buyers during a time when the majority of sellers are experiencing multiple offers.

Please don’t misunderstand:  We do not agree with the ‘strategy’ of pricing a property so low that you would not accept a firm, full-price offer.  We just know that the old way of doing things has changed – and leaving room for negotiation by bumping the list price is no longer an effective way to attract the right buyers.

If you would like to know how we arrive at an appropriate list price for a property, please give us a call.  We’d be glad to share our effective strategies with you!

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