by Donna Bulika, BBA, MCNE
There is a fair amount of psychology involved when choosing the strategy and determining the selling price of your property.
If you are a seller, first you want to know an approximate value of your property. Your agent should provide you with the numbers, like recent sales of similar condos, how many days they were on the market, how many condos were sold in the past 6 months, what is the inventory at the moment in the building and in the area. What upgrades have been done to your place, etc. Once you know the value, then you need to decide on a strategy.
…we, in Toronto, have a lot of foreign buyers… Before jumping into the strategies, let’s talk about numbers. Have you noticed lately there are many properties for sale with a lot of ‘88’ at the end? This actually started to happen recently more than ever. We used to see ‘99’s at the end. Pricing with 9 came from the retail industry by reducing the left number by1. The buyer would think the product is less expensive. The human mind encodes numbers so quickly that only the first number matters. If the last digits are 88 or 99, it matters less. So why do we see a lot of 88 lately?
We, in Toronto, have a lot of foreign buyers, especially from Asia. So the sellers of course want to take advantage of their deep pockets and make the price more attractive to them. We know how much the Chinese believe in Feng Shui and numerology. Other cultures started to adopt these beliefs as well. 8 is a very lucky number and the pronunciation of 8 in Chinese means ‘wealth’ or ‘fortune’.
When people see the positive results and sold prices, they start adapting these strategies and choose to price their property with 99 or 88 at the end. However, there is another aspect to think about.
Buyers, whether they have an agent or not, whether they receive daily new MLS listings or not, like to go on Realtor.ca and search for themselves. The search criteria gives you an option to choose your high and low price limits. The limits are 200,000; 225,000; 250,000 etc., then after 500,000 is every 50,000. So if you are pricing your condo at 499,000 and someone with a great budget of $600,000 is searching for condos, that person may set the low limit at 500,000. Why? Because he or she doesn’t want to crowd their search with less appealing places.
Now let’s talk about 3 Pricing Strategies:
- List at a little higher price and leave some room for negotiations. This is a very common strategy and works well in a balanced market. Pricing at 2-3% higher is quite popular, sellers feel at ease, and buyers feel happy when their agent can knock off a bit from the asking price. It is a win-win situation. The danger is when pricing too high. The longer on the market, the harder it is to sell and get the price you want.
- List at the price you’d like to get. This strategy works well in a sellers market. Where there are a lot of buyers wanting to buy the same property, the demand is strong. Most of the time it attracts multiple buyers and offers. Sellers have a chance to sell their property for over asking price. Most of the time, both the sellers and buyers in the transaction are happy, therefore it is also a win-win situation. Unhappy are the buyers who didn’t win, of course. This happens a lot lately in Toronto when we have a very strong sellers market and prices are climbing up year over year.
- Underpricing by more than 5%. This strategy works in a sellers market and this is the one that drives everyone crazy. Is it legal? It is not illegal. And the seller can choose whatever strategy they want. Is it misleading? Yes, indeed. But this strategy profits the sellers the most. Will buyers be happy? Yes, but just because they will have the positive feeling of winning, but not because they overpaid. Plus there will be a lot of unhappy buyers who didn’t This is a very aggressive strategy with lots of dangers involved. Not every seller will be at ease while on the market, because the thought, “What if I don’t get offers or the price I want?” will bother them day and night. On the other hand, when everyone is doing it and every home on the market is underpriced, it becomes a norm and sellers are more likely to choose this strategy.
In the end, choose the strategy you feel most comfortable with. Discuss all options with your agent and always have a plan B.
Donna Bulika is an award winning Realtor with Sutton Group Realty Systems, specializing in Central and West Toronto areas. She has a Master Certified negotiation expert designation, a Bachelor’s degree in International Business Administration and extensive educational background. Her experience in Property Management and Luxury Products Management benefits her clients, whether they are investors or luxury property sellers. Thinking of selling, buying or investing? You can reach Donna at www.YourRealEstateAgent.ca.