How a Buyer Determines Value

By Mark | Real Estate

If you want to sell your house there are only two things to consider when determining value. If we can put on the buyer's shoes for just a second, it will help a lot.

To make things easier let's consider buying a new car. How do we shop for a new car? We work out what we need and desire until we've chosen the make and model. Then we start to compare.

Scenario One

Car Yard A

Price $15,000

Car Yard B

Price $15,000

In our first scenario, we visit the two car yards and they have the exact same car for sale. The price is the same, the only thing that is different is Car Yard B will also throw in the premium extras like, mag wheels, keyless entry, leather seats at no additional cost.

You say, I'll have the car at B thank you very much. Let's look at a slightly different scenario.

Scenario Two

Car Yard A

Price $10,000

Car Yard B

Price $15,000

In our second scenario we visit the two car yards and Car Yard B is still selling the premium package which you think is worth about $2000. But Car Yard A has dropped its price to $10,000. You say to yourself, "The extras just aren't worth the extra $5000 that Car Yard B is charging for the same car", and you buy the car at Car Yard A.

It's not different for buyers of houses.

Buyers of houses also do comparative shopping. Yes, there is a lot to compare but it is still the same process. I will depend on the market for your house and each market will have different things to consider. Families, older people, couple with kids, each with their own set of wants and desires.

A buyer may choose your house because it has better features and benefits than its competition at a comparable price. Or they choose your house because it has a lower price than something that is more directly comparable.

Price and benefits are the only two things buyers compare when looking at homes for themselves to buy.

For this article, I will be talking about someone looking for a home for themselves and not an investment property which will have other considerations.​

Here is a question​ for you!

Would you give more money to the car dealer because the dealer wants to holiday in Fiji?  

Would you give the car dealer more money because he wants to upgrade his TV? Of course not, but when it comes to selling a house, many people say they want enough to buy another home and perhaps a campervan and have holiday, or something similar. 

I am going to say something that many might think is a bit rude.  Buyers don't care what you want. They just compare your house with the one down the road to determine the house's value. ie. More benefits than something comparable, or a better price than something similar.

Maybe the first thing to consider is, do you really want or need to sell? If you do want or need to sell it's important to meet the market or your house will sit around while others sell and move on. The market is the supply and demand for houses and it's ever changing. If it has happened before, it can happen again. Big changes do not normally happen overnight but anything is possible.


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