A Classic Case of Pricing Strategy Gone Wrong
Most homeowners’ asking prices are not realistic. They put their property on the market and ask for sky high prices. Likewise, most home buyers are not realistic either. They ask for the ground by making ridiculous price offers. In this current economic environment sellers must be aware that it is now a buyer’s market. Supply are plentiful, choices are galore. It is buyers who get to choose.
How should we price our property competitively? According to fair market price or above market price? This is really sensitive to most property and homeowners. Unless you are really desperate to sell, it does not make financial sense to under-price your property.
However an overpriced property will create even more challenges and subsequently help your neighbours sell their property. A property that is on the market for more than 6~12 months will create a perception that there is lack of demand. Hence asking prices may not hold if market conditions deteriorate.
A classic example happened in June 2011 when Sim Lian Group launched Centrale 8, a DBSS public housing project in Tampines Central 8. It was touted as the most expensive public housing project with an indicative price of about $880,000 for a 5 room HDB flat or approximately $750 per square foot.
The launch subsequently received an uproar and outrage both from the media and public. Sim Lian, a well established and award winning property developer then lowered their indicative price to about $778,000 possibly due to public and government pressure.
When they launched the project it was supposed to be application by balloting. But due to poor market response and bad publicity, any buyer could just walk in and select any unit they fancy, also known as – Walk-In-Selection Scheme.
What is the key take away lesson here? Price your property right the first time! If possible price your property slightly below bank’s valuation and below market expectations.
Never make the mistake of overpricing your property using the retail strategy. IKEA seldom give discounts for their furniture. But they do give special promotional discount periodically. Therefore you know that during normal days the furniture are overpriced. You are more likely to buy only when there is a promotional discount.
The problem with real estate property is that buyers are price sensitive. You do not give a promotional price discount even when there is no demand. Overpriced properties are often over-looked and will not be in the radar of house hunters.
A property that is priced slightly below market valuation will get noticed. They get all the attention. All of a sudden house hunters will start to make inquiries and request for viewings. The key to this strategy is to price it right, below market value and below market expectations.
With a bidding war buyers often compete to drive the price up over the asking price. That is when you drive interest and demand. When demand goes up… Price will naturally go up.