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Market Value and Listing Price (back to article list) The listing price is a key component of the valuation and sale of a property in the marketplace. The closer the list price is to market value, the more likely that a higher sale price will be realized within a reasonable period of time. A list price at or close to market value will attract the most number of serious buyers. A heightened demand will usually translate into a higher selling price. Simply put, a buyer, upon seeing a well priced property, will become anxious to make a good offer before anyone else realizes the property's excellent value. As a result, it will be the seller and not the buyer who will be able to negotiate from a position of strength. Therefore, under normal circumstances, it is very likely that the buyer will pay top price to get the property before anyone else does. While there are no absolutes concerning listing prices, it is generally recommended that the list price be no more than 2-3% above the estimated value or value range. If the estimated value is $205,000, then perhaps a list price of $209,000 should be recommended. Of course you should also look at your competition in determining the proper listing price. Often, sellers misunderstand the process of determining a listing price. You can often hear them say "Let's list the property 10% higher just in case we get lucky" or "We need to list the property 10% higher to leave room for negotiations". In both cases, a listing price 10% higher than the market value could very well be overpricing the seller's property. If the list price is indeed too high, then the seller's property will probably be eliminated by the serious buyers who otherwise would have considered buying it. In fact, serious buyers may either not look at the property at all or will use it to justify buying another property that is much better priced in comparison. Of course a buyer may still make an offer on an overpriced property. However, in these situations, it is the buyer that will be in a position of strength in the negotiations as he/she will be aware that they will not be in competition for the property. Indeed they may be the only offer that comes along. As a result, they will often be able to negotiate a price at the low end of or below market value (depending on how long the property has been on the market and how frustrated and desperate the seller has become). Some sellers will counter the argument that the listing price is too high by saying "You can always lower the listing price later". The problem here is that a property will, after a time suffer from the problem of Market Staleness. As the weeks drag on, fewer and fewer buyers will look at the property. Buyers will often ask how long a property has been on the market and be very suspicious of a property that has been listed for a long time. Even when property is finally reduced in price to an accurate market value, buyers will make remarks such as "There must be something wrong with the home, its been on the market so long" or "The property has been on the market so long it must be overpriced" or "The property has been on the market so long, the sellers must be desperate". The end result is often that an overpriced property is on the market longer than necessary and the price received is generally lower than it would have been if it had been listed realistically in the first place. Errors in pricing generally fall into two categories. The first is looking at current listings and pricing to match them. In reality, what your neighbour is asking has nothing to do with what it may sell for. To determine a good asking price, you need to look at what other properties have actually sold for. The other error is in determining "how much you need to get out of the deal" to buy your next place, recoop renovations costs or any other metric. The potential buyer of your house doesn't care about your financial needs. They only care about what your house is worth in today's market. Myths and Misconceptions (back to article list) For many people, the real estate business is a bit of a mystery. Most people don't buy and sell homes very often so the nuts and bolts of the transaction never really become obvious. Following are some common points about the real estate business that are often misunderstood. Many people don't understand how real estate salespeople make their money (and no, we don't all drive fancy cars and have big expense accounts). We only get paid if we actually sell a property. A REALTOR® can represent either the buyer or the seller (or both in some cases), and when the deal closes, the commission amount is commonly split between the two brokerages involved. Following that, the brokerage keeps a percentage of the commission and pays the remainder to the salesperson. The percentages vary from sale to sale and brokerage to brokerage, but it's common for the salesperson to see approximately a quarter of what the total commission was. See more on this at How we make money? Another common misconception is that you have to deal directly with the listing brokerage in order to see a property. Most properties are listed on the Multiple Listing Service and all brokerages have access to the properties listed there. If you are looking for a property, you should select a brokerage/salesperson who you would like to work with and they can search the entire range of what is on the market and arrange showings for you. Why hasn't my house sold? (back to article list) After a few months on the market, (or a few weeks) sellers ask themselves and their sales rep. "why hasn't my house sold?" We're assuming here that your sales rep has been doing their job and have been marketing your property through MLS® and the media. The short answer is because it's priced too high. Ask yourself, "if the house was priced at $1.00, would it have sold by now?" Of course that's a ridiculous scenario, but it demonstrates the point. Somewhere between the current asking price and $1.00, there is a price where your house would sell tomorrow. The problem is, it's usually much lower than you would want to sell for. There is an exception to this rule. Even if you're house were for sale for $1.00, it still wouldn't sell if there was no one who wanted to buy it (how about an acre in the middle of desert?) So in order to sell your property, you actually need to have buyers out there who are looking for a place like yours. Of course this is where time comes into the equation. When you first put your property on the market, there maybe nobody out there who is looking for a property like yours, at the price you're asking. However, 3 weeks from now, that mystery person could enter the buyer's market and find your property. Ok, now wrap some math around all that (don't get scared now, we're almost done). The chance of your property selling today is a combination of all the above forces. The number of people looking for a property like yours, the price and the length of time on the market all factored together gives you the likelihood that the right buyer is going to knock on your door. Let's say that in your area, there are 100 people looking for property and you're asking $200,000. Of those only 10% are looking for a place like yours (let's say a 3 bedroom bungalow). That leaves 10 people. Of those, only 20% are looking in the $200,000 range. Now we're down to 2 buyers. Now let's also say that there are 5 houses on the market in the same class as yours. You see the problem, 5 properties and only 2 buyers. Your's might not make the cut this week. This is were the other force of how well does you're property show comes in to effect. However, if the total starting number of buyers in our example had been 30 instead of 100, we might not have anybody currently out there looking who might consider your property, regardless of how beautifully it shows. Of all the factors, price is the only one that you have absolute control over. There's nothing you can do about the number of buyers out there or how much they are willing to spend or what kind of property they are looking for. So if you find yourself asking why it hasn't sold, unless your place is very unique (therefore there is only a very small percentage of buyers who are looking for something like it), the price is too high. Statements like "it's in bad condition" or "it's a bad location" or and other "deficiency" are all just some rewording of the statement "the price is too high". How we make money (back to article list) How REALTORS® make their money is one of the most misunderstood processes in the real estate business. On each real estate deal, there is a percentage of the sale price that is paid to the listing brokerage. Typically, this is then split evenly between the selling and buying brokerage in the previous paragraph. Then each brokerage divides the money between the brokerage and the salesperson. Each brokerage company has different salesperson payment methods, so let's take an example of a deal that pays 5% commission and the seller's brokerage has a 40/60 split for paying salesperson commissions. On a $150,000 home, the total commission is $7,500 (plus GST but we'll leave that out of the calculation for simplicity's sake). Of that, $3,750 goes to the brokerage representing the seller and $3,750 goes to the brokerage representing the buyer. The seller's brokerage then keeps 40% of that ($1,500) and the selling salesperson gets the remaining 60% ($2,250). The buyers brokerage may have a different brokerage/salesperson split. The important thing to realize is that salespeople do not get paid a salary. They only get paid if they close a deal for either the seller or the buyer. If you are looking for a home and the salesperson drives you around to see 10 houses and then you buy through another salesperson, the first salesperson receives nothing. They are out time and expenses. I encourage you to find a salesperson you trust and stick with them. They will work very hard for you to earn their share of the commission. And just what is it that salespeople do to earn the $2,250 from the example above? Below are some of the things that a real estate professional brings to the table.
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