The price of a listing is the documented amount with the correct context for a possible transaction. This price varies according to the sale expectation and whether or not it includes generating activities or extra obligations. To determine it, different tools must be used based on the three prices that exist;
- The owner’s price
- The seller’s price
- The advisor’s price
The first two have different variables, since the owner and the seller have their own interests that directly influence the price at which they value the listing. There are different factors to take into account when analyzing both elements, that is why the price given by the advisor must be neutral, pondering the values given by the parties, but in a fair way and according to the market.
This is what you should be considering when analyzing each of the real prices of sale:
It is the price at which the owner wants to sell. In general, it is the first to be obtained and it maximizes all the property’s attributes, giving a very high sale price in some cases. Some of the factors that influence this decision are:
- The need for sale
- Expenses of real affectations (such as mortgages)
- Transaction and closing expenses
- Time in which you need the property to be sold
- Sentimental value
- Investment expenses
- And others
For the owner, previous situations in which the property has been involved can affect the price, for example if it is an inheritance or a family home for years. Investments and expenses incurred for repairs and improvements are also taken into account. In the months in which the owner hopes to go on the market, it really matters whether it is his house or if it is an investment property; For the first case, the relocation expenses must be take into account and for the second, the expenses that may be incurred in the future.
The duty of the advisor at this stage is to analyze what is the need that is being addressed and once located, give a price adjusted to the market. Sometimes a price adjustment process can be done, providing feedback between the owner and the market. If the price is very high, possibly no buyer will invest and that should be made known to the owner to gradually lower it.
This price is directly influenced by expectations, which means that if it is a non experienced buyer, the value that is willing to pay is maybe below the market value and that the advice should be focused in the understanding of the variables; or if it is a buyer who knows the market well and that implies other types of strategies when selling.
The first thing to take into account are the types of buyers there are, these are easily classified into two main categories:
- Investor Buyers: The interest is in the numbers and the expectations they have are directly related to the added value of the transaction.
- Buyers that live in the property: Their interests take into account some qualities such as location, external expenses, size and other comparables.
You should use the comparables of transactions to show the real price of the property. A study can be made of similar properties on the market and the price at which they were finally sold, to give a better advice. For the buyer, their purchase history in recent years and the comparable options they have can influence, because if it is a market with a lot of supply, the reality is that they are willing to invest less than what the property is really worth.
The context in which buyers seek to invest determines the market. Some elements that can influence are: oversupply, financial crises, past experiences, future possibilities … The same client may have different needs over time and therefore the each scenario should be analyzed. The purchase motivation must be determined and, after that, the capacity; because these two perspectives do not necessarily are the same in all cases.
Through good advice, the two previous prices can be directly influenced, however the advisor, when proposing a final price, must take into account the variables of the seller, the buyer and the market. The first thing to consider at this stage is your willingness as an advisor to invest time, energy and work in the listing.
To achieve a balanced sale price, different tools must be used, since the market can often be closed and it becomes difficult to obtain the real comparison values. Against this you can resort to;
- Registry Studies
- Mortgage Securities
- Tax Studies
- Comparables
The fair price includes different evaluations; the market price responds to needs that compromise the value of a property according to time, location and special characteristics. Therefore, a middle point must be reached where the transaction can be carried out. The formula to get that price is the following;
All the values in the formula can be determined through studies of prices, availability, municipal taxes, values of m2 by zone, sales histories, location, inventories of finishes and any other comparable option. Including professional appraisals which is a technical instrument that can determine real values in the price of the property, however it is important to keep prices in ranges, because the estimates are not absolute.
All the information obtained through conversations with clients must be taken into account when giving the advisory price. It is recommended to maintain feedback between all parties, since in the end you can learn a lot about the market through meetings with the different participants.
Clear and transparent communication regarding prices can avoid problems in the final stages of the negotiation. Giving a fair price, adjusted to the reality of the market is essential to reach a balance between the different prices of the property and finally conclude the transaction in the most effective way.
