By Ross Wilson
“It is psychological law that whatever we desire to accomplish, we must impress upon the subjective or subconscious mind.” Orison Swett Marden
You’ve presented your market value range after discussing the thorough analysis of the professionally prepared Comparative Market Analysis. In this issue of the continuing series of articles, which are abridged excerpts from my book, The Happy Agent, I address the subject of an overly optimistic seller.
It’s impossible for a homeowner to escape their personal bias about their private home. And because of this lack of objectivity, they’re obviously unable to rationally evaluate it. After all, furnished and decorated to their own exacting standards, their castle holds fond memories and loads of emotions. Perfect, but perhaps not for an average buyer.
During my career, out of thousands of proud and not so proud homeowners, I recall only two who needed gentle persuading to list higher than they’d anticipated. Fortunately, they trusted me because I ultimately succeeded in obtaining the higher price. Were they happy? You bet. Virtually every other former seller held unrealistically inflated opinions about their property – some ridiculously high. (By the way, when assessing your own residence, you’re no exception.)
Your seller’s subjective estimation is like a cake, baked with haphazard exposure to newspaper ads and neighbourhood rumours, and iced with wishful thinking. They could have erroneously concluded that their superior home was worth a lot more than those inferior ones on the next street or on the floor below. They might be shocked by the suggestion that the high tension power corridor abutting their yard might adversely affect its value. They may have disregarded their old leaky concrete pool, corner lot with no rear yard or the messy backyard over the fence.
They may be desensitized to their home’s low level of hygiene or threadbare broadloom. Or they expect a 120-per-cent return on the cost of improvements as claimed feasible by certain TV reality shows. Or they base their opinion on a perceived need to affordably make a move into their next “dream” home. Or they originally over-paid for the property.
It’s your responsibility to objectively assess how an impartial buyer – who, significantly, lacks any emotional attachment – will perceive it. Ideally, a homeowner needs an honest and objective, hype-free opinion from someone they trust.
By definition, fair market value (FMV) is the highest price estimated that a property will bring a willing seller if exposed for sale on the open market, allowing a reasonable time to locate a willing buyer who agrees to purchase with the knowledge of all the uses to which the property is adapted and for which it can be legally used, and with neither party acting under necessity, compulsion or peculiar and special circumstances. Wow! That was technical. Allow me to simplify; to determine FMV, the homeowner must list it for sale.
Your new seller must fully understand that, unless you’re able to foretell the future, your estimate is just that – an estimate. It’s an informed guesstimate based on researched facts combined with instincts, market knowledge and experience. At the end of the day, though, FMV is determined only upon a sale.
At that moment, it becomes market price, which is an accomplished or historic fact as the amount paid or to be paid for a property in a particular transaction. In an efficient market system involving willing, informed parties acting rationally and prudently, given reasonable periods of time without undue influences, market price tends to closely align with FMV. However, in a hot sellers’ market, when emotional buyers are behaving aggressively – that is to say subjectively – market price often excessively exceeds fair market value.
During my career, I found that many sellers failed to appreciate the importance of establishing the best asking price. They often claimed that it doesn’t really matter since buyers can offer whatever they want. And many agents typically go along with them. But the right price can be critical to a successful marketing campaign. In the next issue, I describe this separate but related topic. I say separate because, even though it’s related, it is exactly that – a separate conversation to be had with your sellers from the start.