Home Truths

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Fair Negotiation

A major principle of negotiation is fairness. If people see you as fair, you are more likely to be treated fairly. The most successful negotiations are where buyers and sellers are both satisfied. Successful negotiations are almost always fair and realistic.

One of the main causes of distress in real estate is trying to do the impossible. People often stretch themselves too far financially or try to buy or sell at levels not possible for their situation.

For instance, if you are selling, you cannot base the selling price of your home on your personal needs. Too many sellers set their asking price based on what they "have to do" in the future. This is not realistic.

The real estate market cannot give you your personal needs. The market can only give you the best price on offer in the market. Whether or not this price matches your needs is another issue.

Don’t say, therefore, that you "need" a certain price. Say, instead, that you want the best market price. If that price matches your needs, you can sell. If not, you can stay. And, remember, that the price you get today may not be as high as the price you could have got yesterday. That’s just the way it is. You can blame agents for some things, but rarely for the economic conditions.

If you are buying, don’t say that you have to buy in a certain area at a certain price. First decide on the maximum price you can afford and then find the area to fit your price.

If you can’t find a home within your price range, you are probably looking in the wrong area. You can’t expect homesellers to lower prices to match the price you can afford. That is not fair.

As a buyer, you have to compete with other buyers.Be one of the best buyers and this will make sure you get one of the best homes.

The same applies when you are selling. Your home competes with other homes for sale. If you price your home too high, buyers will buy better priced homes.

So, be realistic. As a buyer, make sure your best price will give you the best range of homes to inspect.As a seller make sure your home is priced to attract the best buyers.

Whether you are selling or buying, if you are fair and realistic, you will find the whole process far more pleasant.

Price

Is your price too high?

What stops a home from selling? It’s not the location, nor it’s features (you can’t easily change these anyway) - in most cases it’s the asking price.

One of the challenges that many sellers face, is being rational about the value of their home.
Harvard Business School professor Max Bazerm’s research has shown that, contrary to rational economic theory, people seem to view almost anything as more valuable once it belongs to them!
According to basic economic principles, we should place the same value on an item whether we’re selling it, buying it, or merely windowshopping.
Yet few of us behave with such level-headed rationality. Specifically, psychological research shows that we typically value their own possessions more highly than the possessions of others.
Bazerman calls this “the endowment effect” which occurs because “ownership” is accompanied by the threat of loss, and this “loss aversion” can lead us to over value our assets and ask too much for them.
Consider what often happens when a family home goes on the market. The endowment effect creates a ‘fear of underselling’, which leads family members to set an irrationally high asking price for the house.
After an initial flurry of interest, the house sits on the market for months, even years. Price cuts fail to attract much interest, and a once beloved home becomes a source of stress and anxiety. To compound the problem, the longer the home remains unsold, the more damage is done to the preceived value in the marketplace.
How can you avoid succumbing to the endowment affect and loss aversion the next time you want to sell? Professor Bazerman suggests answering three questions:
1. “Would I want it if it wasn’t mine?”: When you put yourself in the buyer’s shoes, it might not look as appealing.
2. “How much is it really worth?”: Consult an expert - get an independent valuation or use a trusted real estate advisor.
3. “What if it doesn’t sell?: If not selling would cause financial or other difficulties, rethink your goal.

Sellers, don't buy first

Many home-owners face a dilemma. When it's time to make a move, they don't know whether to buy first or sell first. If they sell first, it may be hard to find another suitable property at an affordable price. If they buy first, it may put them under pressure when selling their current home. And, high pressure often means a lower price.

In recent years, buying first was common. A healthy economic environment meant sellers could usually sell for a good price in a short time.

Although buying first has always been risky, the risk is now extreme. Property stock levels have swelled and sales volumes are well down. Most real estate markets are struggling. It's a volatile and unpredictable time.

The family home is an emotional asset. This is why many sellers tend to overprice their homes. They often make it worse by rejecting early offers, without realising that these offers may be better offers than they'll ever see again.

When an agent offers an appraisal of a home, the price the agent quotes is simply that agent's opinion of market value. It's not a fact. Unless the agent intends to buy the home, the appraisal is financially irrelevant.

The only opinion that matters to sellers is the opinion of buyers who are cashed up and ready to sign. Cash is king these days.

The easiest way to impress someone is tell them what they want to hear. This is why a lot of home sellers place their property for sale with the agent who quotes them the highest price. But, once sellers sign with an agent, their home has to compete with other homes on the market. Now that stock levels have risen and sales are down, buyers are shopping on price.

The best buyers often come early. They chase the fresh stock not wanting to miss out on the right home for them. If the pricing strategy is wrong, they'll reject your home and move on.

If you sell before buying, you are under no pressure if the buyers don't agree with the asking price for your home. However, if you have bought first, you could be locked in. As urgency goes up, the price often comes down.

The buyers don't care that you need a certain price to make the move. They want to buy as cheap as they can. They don't care that your neighbour's house may have sold for a higher price last year. They are only interested in paying today's price, which they know is often cheaper.

What should you do in this market if you are thinking of selling? Don't buy a property before you sell your current property. It's far too risky.

Sell first. You will then be a cash buyer in a buyers' market instead of a desperate seller in a buyers' market. You will have control in a market where many sellers are losing control.

Sell first, get the cash and then go and buy your next home.

Rules to stay safe . . .

Every year, consumers are hurt in property - all because they did not know or did not follow a few simple safety rules of real estate.

No matter what you are told, no matter how appealing a property deal may seem, unless you follow the safety rules, you stand a really good chance of joining those hurt consumers.

It is simple to stay safe when dealing in property. Simple, but not easy. There are so many temptations to break the rules. A step in the wrong place could mean disaster.

Here are those real estate safety rules:
 

Home buyers

  • Always get independent legal advice before you sign anything.
  • Always hire an independent and reputable valuer before you sign anything.
  • Speak to neighbours. Locals are a great source of vital information.
  • Always get a full building report from an independent inspector.
  • Do not commit yourself to repayments of more than 30 per cent of your gross income.
     

Home sellers

  • Always get independent legal advice before you sign anything.
  • Do not pay any money to any agent until your property is sold and you are satisfied.
  • Insist on a guarantee from the agent that if your property sells below the price quoted, you do not have to pay any commission.
  • To achieve a better price, avoid auctions.

Safety should be the number one consideration when making any property decision. If in doubt, do not proceed.

Finally, two questions. Always ask yourself, “What is the worst that could happen if I make this decision?” And, always ask the person with whom you are dealing “Is there anything else I should know?”

These rules are not comprehensive, but they will set you in good stead. The more research you do, the more questions you ask, the safer you will be.