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.

The true value of your home

As a seller there are five things you want from your real estate agent: TRUTH at all times; RELIEF from the stresses associated of the selling process; AWARENESS of factors influencing the sale of the property; EFFORT to sell the property; and of course, the HIGHEST PRICE.

Interesting, buyers want the exact same things, EXCEPT they want to pay the LOWEST PRICE. A good agent knows how to close this gap, using their negotiation skills to achieve the best possible price for the seller.

There are 3 things that need to be in place to achieve the highest price: the right pricing strategy, the right marketing; and the right presentation. In the weeks ahead we’ll look at each of these, beginning with pricing.

The first step in pricing your home right, is to establish the true value of your property. If you do not understand the true value, you risk rejecting the best offers. Home sellers who are realistic about their asking price have the best chance of selling for the highest price.

The best way of determining the value of your property is to hire an independent valuer. The cost of a valuer should be about $500.

It’s money well spent. It will help you determine a fair asking price. An independent valuation can also be shown to buyers to help justify your asking price.

When dealing with agents, be careful because some ‘over-quote’ the likely selling price to sellers. They do this with the intention of winning business. These agents feel that the best way to win business is to quote high.

When speaking with agents about the value of your property, you must ask them to justify their quote: "How did you come to that figure? What sales have you compared my home to?"

Another great question to ask is: "If you sell my home for less than the price you quoted me do I still have to pay you the commission you quoted me?". Getting a guarantee for the price quote helps protect you from potentially being misled about the the value of your home.

The best pricing strategy

When selling, it is important to establish the true value of your property. If you do not understand the true value, you risk pricing your home incorrectly.

A fair asking price will attract the best buyers. There is a wise saying in real estate, over price and you will undersell. Some sellers list their property with a high price and low motivation.

Over time as motivation to sell rises, the price usually comes down. The tragedy for sellers who overprice is their final price, more often than not ends up below what they could have achieved when the property was first listed.

For this reason it’s important to set a ‘fair and realistic’ asking price. Sellers who do this will get a better result when they sell.

Having a registered valuation will help you determine your asking price.

When you promote your home at a fair price you will attract the best buyers.

If two properties similar to yours sold recently, one for $275,000 and the other for $285,000, then an asking price of say $299,000 might attract the best buyers to your property.

There are several different ways that real estate agents advertise property prices. Some methods mislead and frustrate buyers. For example:

Price ranges $500,000 - $550,000

Offers over $500,000

Opening bid $480,000

These methods are designed to attract buyers. The problem is, they attract buyers at the wrong price. If a home seller wants $370,000 some agents will advertise a much lower price. Therefore they attract buyers from the wrong price range. The lowest price that a buyer sees is often the highest price they want to pay.

When you advertise your home at a fair ‘fixed’ price you will attract the best buyers. The price you promote should be a price you are happy to accept.

How to buy the home you love?

This might sounds so obvious, but to buy the home you love . . . just make your best offer up front. As obvious as this might seem, how many people actually do it?

Some buyers like to ‘play games’. They offer far less than they are prepared to pay, only to be disappointed when they discover the property sold to another buyer.

Games by their nature have winners and losers. So, if you really want to buy the home you love, don’t play games.

Ask yourself "what’s the most I am prepared to pay for this property?" Then ask "how would I feel if another buyer offered more?"

Think hard because you may only get one chance to make your best offer.

If you plan to live in the property for many years, paying a little more than you expected will be worth the years of enjoyment you and your family will get.

It’s very likely the home you love is the same home others will love. So, by not playing ‘the game’ you gain a big advantage over buyers who do.

Home sellers who use Cox Partners are encouraged to advertise a price they are willing to consider. This does not mean that if you agree to pay the asking price you are guaranteed to buy the property.

Many buyers improve their chance of securing the home they love by offering more than the advertised price.

Offer your best price up front. If you do, you give yourself the best chance of buying the home you love.

And remember, the best properties sell fast.So, give yourself the best chance by acting quickly. You should know almost immediately if the property is right for you.

Once you have worked out your ‘walk away’ price, submit your offer in writing.

Auctions get lower prices

If you’re tempted by a real estate agent to auction your home – PLEASE DON’T! Auctions are a financial minefield. They get a LOWER price, and I’d like to explain why, as simply and clearly as I can.

STARTING PRICE: It seems as if the price goes up at auctions. But this is because the auction starts LOW. You won’t get a high price starting low.

RESERVE PRICE: The reserve price is the price at which the home can be sold. It’s the lowest price a seller is prepared to accept and it is the central focus of the auction. If you are trying to get the highest price, NEVER make your lowest price the main focus of the sale. Instead you start with a strong price, then adjust.

REPELS BUYERS: Research shows that more than 90% of buyers do NOT like actions. It makes no sense to use a system of selling disliked by most buyers

INCONVENIENT: Many buyers see that a home is for auction, and if the date doesn’t suit them, they don’t even bother to enquire.

BARGAIN HUNTERS: Bargain hunters know that auctions are one of the best places to find cheap deals in real estate. The reason why mortgagee sales are often by auction is because the SALE is more important than PRICE.

COMPARATIVE: If two or more people want to buy the same home, the worst thing you can do, from a negotiation point of view, is to allow each person to SEE what the other is offering! Instead of offering their highest price, each buyer will only offer a SMALL amount above what the other buyer offered.

DECEPTION: To persuade sellers to auction their homes, agents talk about high prices, and then to get buyers to come to the auctions the same agent talks about low prices. The sellers end up selling for less than they were told they could get, and the buyers often end up paying more than they were told they could pay.

FAILED AUCTIONS: When a home does not sell at auction – and most don’t – it is labelled a "failure’. Buyers think something is wrong with the home; and many will offer LOWER prices.

My plea is that you avoid auctions. It’s the worst way to sell you home. Auctions really do get lower prices.

If you want to know how to get the best possible price in todays market you can get some straightforward, commonsense advice from the book "How To Get the HIGHEST PRICE For Your Property" by Gary Pittard. We have complementary copies available now. Just call Cox Partners Estate Agents on (06) 835-4321 anytime.

We live in interesting times

House sale volumes improved in July with 90 homes sold in Napier. This is encouraging, because Napier is one of the few regions where house sales volumes are still down on a year ago (-16%).

Two significant factors seem to have constrained the level of sales. One constraint is fluctuating buyer confidence. The ups and downs of financial news has generate a degree of uncertainty. Buyers have responded with a reasonable amount of resistance.

The other is unrealistically high price expectations of some sellers. In the face of this gap, buyers have chosen to wait expecting prices to ease.

Persistently low levels of sales have been reflected in downward pressure on prices. Price growth is at an 11 year low of -5.1% per annum.

The strongest growth segment has been with first home buyers who have increasingly coming into the market to take advantage of the Welcome Home Loan and Kiwi Saver First Home Buyer Subsidy. Both are attracting a huge amount of interest in properties under $280,000 (the maximum for a Welcome Home loan).

This growth combined with favourable mortgage interest rates means the number of house sales could improve over the rest of 2011.

However, any upturn will be moderated by relatively high levels of household debt and a low home affordability by world standards.

Recent concerns about debt in Europe and the United States have pushed up the cost of funding for banks – a factor which may constrain their ability to lend during the remainder of 2011.

Hawkes Bay’s property market is likely to benefit from increases in spending by the agricultural sector. Although the wine industry still looks likely to struggle, good returns for meat and wool, along with improving prices for horticultural products should boost the region’s economic growth and help support the housing market.

Private treaty sales preferred in Hawkes Bay

Cox Partners specialise in Private Treaty Sales. That means your property is marketed for sale at a fixed price, with a skilled agent to manage the enquiry and negotiate your sale.

More than 95% of property sold in Hawkes Bay is by Private Treaty Agreement for Sale and Purchase. The balance (2.9% by Auction and 1.86% by Tender) tends to be used in circumstances where a sale is required within a definite period, or a sale is being forced by another party (commonly a mortgagee) – in both of these
circumstances the price tends to be less important than the need to sell.

There are four important reasons why Private Treaty Sales are the preferred method of sale in Hawkes Bay:

1. Buyers prefer the Private Treaty Agreement for Sale and Purchase.

Over 85% of buyers prefer viewing property offered at a fixed price, and tend to avoid properties without a price. Our marketing is designed to attract (rather than repel) potential buyers. Also over 90% of buyers (and sellers) do not like auctions. It makes no sense to use a system of selling disliked by most of the buyers.

2. Private Treaty negotiations are more easily managed and controlled.

The Private Treaty negotiation process can be managed and controlled better than the Tender or Auction process. Private Treaty negotiations enable a greater scope for negotiating more favourable terms and conditions for the seller. This inevitably results in a better outcome for the seller and the buyer.

3. Private Treaty Sales achieve better prices.

In the hands of a skilled negotiator the flexibility of the negotiation process means a better price for the seller. Auctions get lower prices because the focus is on the seller’s lowest price (the reserve) rather than the highest price the buyer will pay. Most sellers don’t want the bargain hunters who are attracted to auctions to buy their property. Generally a skilled negotiator will achieve 10% more for you.

4. Private Treaty Sales deliver better value than no-price methods.

Private Treaty Sales generally cost less because marketing expenses are paid by the agency, which attracts and services a large number of buyers. And you only pay when a sale is made and you are happy with the final result. A better price and a fair fee leaves more money in your pocket.

Insist on a Private Treaty Sale, and avoid no-price strategies, whatever you’re told