The dangers in establishing a market price

The dangers in establishing a market price

Establishing a realistic market price can be fraught with danger.

The intentionally inflated price quoted by an agent is the most common. It is the improbable lie or the lie by omission.

Other dangers that are not so obvious include well-meaning neighbours and friends, and the auto valuations provided by a myriad of websites.

Neighbours will naturally have a valuation higher than market value in mind for their own home and may become concerned when a neighbouring property is advertised at a price that does not match their expectations. This concern often manifests as advice to the neighbour about underselling.

Family and friends will also have their ideas on value, often based merely on personal opinion or gut instinct which can occasionally manifest into advice on an asking price.

Finally, a plethora of websites and home valuing apps have trickled into the market. The automatic algorithm and real estate agent referrals are the typical types of online valuations. Some even combine both.

All major and many smaller real estate websites use an algorithm to initially price a property. You simply enter an address into the appropriate search tool and a valuation will appear within seconds. Researching your property value this way is fraught with significant dangers.

The initial danger involves the variance that occurs in the quoted prices.

Looking past the complexities of these computing algorithms, these valuations treat property as a commodity by using simple numbers: how many bedrooms, bathrooms and living areas along with house and land size.

Algorithmic valuations overlook one of the most important factors when setting an estimated price: the emotional aspect. A property’s layout, location, views, schools zone, whether it is in a cul-de-sac or on the higher side of the street are just a few variables affecting the price a buyer will pay.

Pricing a property correctly is a combination of simple science mixed with complex art. An understanding of what constitutes value in a buyer’s eye takes skill and experience.

Websites have the science, but not the art.
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The dangers in establishing a market price