Risks of Under or Over Pricing Your Property
Property is definitely one of the most secure and largest single investment that we own, however, there are a number of important considerations one must make before placing property on the market. Naturally, when selling, we would all hope to get the best possible price for this jewel we have been working so hard for. However, it is neither our emotions, nor our personal tastes or opinions or those of others that determine the value but - The Market.
In Malta, unlike continental Europe, we do not have a price per square meter for different property types - in different towns, villages and streets. Locally, it is common practice, that when we decide to place our home on the market, we tend to scout the papers, ask a few friends and neighbours for their opinion and finally determine the price. Is this however the right way to value our property? Is the price we decided on the right one?
It is always very tempting to ask just for that little bit more or at times, a lot more, but there are a number of hidden risks involved. Property valuations are not based on what the lady down the road is trying to sell her property for or by comparing to similar properties advertised in the papers or web sites. Pricing is determined by market forces, particularly the primary economic principle of supply and demand, location, property type, any views that the property might enjoy, the standard of finishing, garden, size of swimming pool, size of garage, basement, parking availability, proximity to amenities, brightness and airiness, whether it's south facing or otherwise, standard of fitted kitchen and bathrooms as also the quality of doors, floors and other extras. I would like to emphasize that the most important factor in the equation, is location. Yes! LOCATION, LOCATION, LOCATION. Without batting an eyelid I would advise anyone to invest in a room in a good location, rather than a castle in a bad one.
A typical example that would help you appreciate the above is Tower Road, Sliema. Although we are talking of one road, there is a significant difference in price between an apartment at the heart of the commercial centre to an identical apartment on the stretch between Fortizza and Torri or to the one on the stretch of Independence Gardens, the latter fetching the greater value. Why does this significant price difference exist? You might argue that we are talking about an identical property in the same street and town, so what makes the property overlooking Independence Gardens worth several thousands more than the other two? The answer is simple…. idyllic views of Spinola Bay, Casino and a south facing location. This explains why location plays a determining role and this is further extenuated in Malta being such a small country where even properties in the same street, having the same size and standard of finish can bear a different price tag just by being a few metres away from each other.
When toying with the idea of selling your property my main advice is to seek the services of an architect or a reputable estate agent before moving further. Should you decide to use the services of an agent, I would strongly recommend that you ensure that the person conducting the valuation has a number of years of experience in the market.
A property consultant with a minimum of 3 years experience would have gained enough market knowledge to know what is on the market, what was on the market, and more importantly what prices property in that particular area and street were sold for over the past few months. I would like to underline that it is very easy to ask for any price but the proof of the pudding is in the eating, being that, the selling and not the asking price is ultimately what really matters. Bear in mind that when you conduct a personal valuation you run the risk of under or over pricing and I am sure that you do not want to see your hard earned investment selling for a few thousands less or lying idle for asking a few thousands more. I would therefore suggest that you seek the services of three reputable estate agents, a number of which offer this service free of charge, and then draw an average. This will reflect the true market value of your investment.
What are the risks? Think about it! Would you pay several thousand Liri more for something not worth paying for? I'm sure everyone would categorically answer No. How would you expect a potential purchaser to do so? Remember buyers spend months looking for the right property, just as you did. They know an overpriced home when they see one, and they simply walk away, leaving your property to languish there while sensibly priced properties are selling around you.
Here, I would suggest that we should stop and reflect. At one point or another we were all potential buyers. Put yourself back into those shoes. Definitely when you were looking for your dream home or an investment, you scouted the papers continuously and noticed the amount of time a property is on the market, and may therefore have wondered if there was something wrong with it. Although a number of years might have passed since you went through the process, things have not changed; buyers today do the same, with the difference that nowadays they are more knowledgeable and up-dated thanks to the Internet.
The Internet makes it much easier for anyone to become experts on the asking prices of property in any given area. The larger estate agents all have web sites with a search engine that is accessible 24 hours a day. This has empowered buyers, and in my opinion it's extremely important for the market in general, to have access to the information that will help them do a qualified decision, so please do not fool yourself - if you want to sell, price your property sensibly. Now that we have ascertained that the buyer has the knowledge, we have to accept that many buyers won't make a low offer for fear of insulting you, the seller - they just go away without even giving you the chance to negotiate. Even if at a later date, when you notice that interest is dwindling and no offers have been put forward, you reduce your price, it can be difficult to persuade a client to reconsider a property they might have rejected.
In the end you will either have to reduce your price or wait for the market to catch up with your asking price. The net effect is a loss of time and money. Some might reason that since that they do not intend purchasing another property, they can afford to wait. In the meantime however, the potential cost could also be the loss of bank interests or gains from other investments. This is not the only pitfall, as meanwhile, of course, you have missed out on all the initial market interest. International studies and my local experience clearly show that a house is viewed most during the first four to five weeks of its placing on the market, whilst, activity declines noticeably by the 7th week. I strongly believe that it is - best to take advantage of the initial burst of market interest, and maximize your chance of attaining the best price, in the shortest possible time.
Apart from the above we also have to consider the emotive side of selling your property. Having your home on the market for an extended period can be very stressful, because it can mean your life is on hold. Also, constantly trying to keep it in a suitable condition to be inspected by complete strangers can be inconvenient and hectic. The longer your property is on the market, the greater the chance that something will need repairing; leading to expense that could have been avoided. Missing out on a sale may mean losing the dream home you want to buy. Worse still, you could end up trying to pay two bank loans for a while!
Remember, selling your home does not only mean that you are cashing in on your largest investment but you are also parting with a substantial part of your life, with all the beautiful memories attached. On the other hand, whoever is acquiring your home is investing in his dream home and a new lifestyle, with a consequence that both vendor and the purchaser want to avoid the pitfalls briefly outlined in this article.