How Buyers Determine Value

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If you want to sell your house, there are only two things to consider when determining value. Let's pretend we are buyers for a second and think like a buyer to get a better understanding of value.

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 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. You think the premium features are worth about $2000. But Car Yard A has dropped its price to $10,000. You think 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. It 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 set of wants and desires.

But it boils down to this:

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 but still essentially the same.

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 even give more for the car if the dealer was having trouble paying his bills? 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 a 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 don't even care if you in financial difficulty. They just compare your house with the one down the road to determine the properties value. ie. More benefits than something comparable, or a better price than something similar.

The market is the supply and demand for houses at fixed point in time. Maybe the first thing to consider is, do you 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. So the real question when selling is, Do you have to sell to move on? And if you do, will you meet the market?

A good agent is employed to get you the best price the market is willing to pay. This may be below (not ideal but does happen if expectations are too high), at, or above your expectations. The highest possible sale price is what we aim for and work hard to achieve.

Note: Big changes in the housing market do not typically happen overnight, but anything is possible. Overnight market moving events have happened before, and they can occur again. More often, the housing market moves at a much slower pace as it considers the many facets that come into play.