I thought that it might make an interesting post to attempt to find out how Buyers (lets forget Sellers for the point of this exercise) would like to see property sold.
Here are a couple of options.
1.The list price is the price that the Seller wants and there is no negotiation.
2.The list price is the lowest price and the Seller will only accept offers over this price.
3.The list price is the highest price that the Seller would expect and all offers should be considered.
4.There is a price range given, ‘Offers between $x and $y’.
5.There is no price at all and Buyers must come up with their own value.
WHAT MOST PEOPLE ARE USED TO
For the majority of people (and myself as a newcomer), option 3 without a doubt.
Forget real estate and think about trash & treasure markets, ads in the Trading Post or the local used car yard where the following conversation takes place thousands of times a day:
"Emmachisit?"
"20 dollars"
"I'll give you $15"
"$18"
"OK - I'll have it"
Why is real estate any different? If there is to be legislation and only one pricing option was allowed, then that's the one most would be comfortable with.
ANCHORS
A fixed asking price gives the buyer an anchor. Business-minded buyers with a keen eye for values don't need one but most people (ie most of the market) do feel more comfortable with a starting point.
If the secret of making money is 'giving buyers what they want (incl finding a way to profit from this)' then this is at odds with a negotiating maxim 'that the first person who nominates a figure is the loser'.
I admit that I would not have flown across the country to buy IPs if the places I ended up getting either had no asking price or the subject of an auction.
PLANTING AND NURTURING THE SEED TO BUY
Locally, if a property in an agents window doesn't have an address and an asking price I'm not interested. Why? Because I'm lazy.
Though if I'm really serious then I'll sometimes enquire, but it depends on how I'm feeling on the day. That's my problem, not the agents. But it could be the vendors problem if it means I miss out on being exposed to a suitable property.
There's a bit of control-freakery involved - some agents (especially Jenmans) think that withholding information gives them a better sales opportunity since buyers MUST phone to get basic info and the agents can do their sales spiel (ie 'qualify' you and maybe sell another). This could also be seen as a hoop to discourage tyre-kickers, but at the same time agents time can be wasted on basic/boring questions that a good ad would answer (eg address, price and bedrooms).
Is a good property love at first sight, or is it one that gradually grows on you? If the former then the buyer will gladly jump through hoops. But if the buyer interest is initially marginal then any obstacle (even if just phoning an agent) is too much and a buyer has just been lost.
There's nothing more fragile than an new idea (in this case to buy), and even the most trivial hoops (eg a receptionist who can't help, lack of published address or price, inconvenient opening hours etc) can stop it from growing. Hence a fleeting idea does not progress to become an inspection, there is no inspection to become an offer, and there's no offer to become a purchase.
THE EFFECT OF INCREASING BUYER EXPERIENCE AND THE SEARCH FOR VALUE
My observation (similar to JamesGG & Daz) is that the more experienced/business minded buyers need no anchors. They know how much the property is worth to them based on what they can do with the property and/or comparative sales and yields*.
Researching prospective purchases is a continual search for value, and the sale method really doesn't matter provided the price and sale conditions meet the buyers needs. But annoying buyers is not a good move, and some of the trickery that Ian Reid encourages (refer widely advertised free pamphlets) could do just that. When buying I think there is only one me and many properties, so try not to get wound up on one and am always comparing with others (even if 99% serious on one).
THE BUYER'S REACTION TO VARIOUS SALE OPTIONS
Each sales option has a different effect on the buyer, though my theory is the effect diminishes with buyer experience.
But bear in mind we're talking about a mass market (rather than an elite of investors who may not pay top dollar) and the agent ignores this at his peril. So his sale method must not discourage the average Joe (assuming we're talking about normal suburban houses; blocks of apartments & commercial may be different).
So for most people the method of sale can encourage or discourage buyers.
Let's look at the options again:
1.The list price is the price that the Seller wants and there is no negotiation.
2.The list price is the lowest price and the Seller will only accept offers over this price.
3.The list price is the highest price that the Seller would expect and all offers should be considered.
4.There is a price range given, ‘Offers between $x and $y’.
5.There is no price at all and Buyers must come up with their own value.
As a buyer I like the straighforwardness of 3. Pay asking and you'll get it. Offer less and you might not get it. If you're desperate you'll pay asking, if not you'll offer less.
1. may cause me to walk away, though if I really want it then I'll put in a lower offer anyway. Then it becomes more like 3. If I desperately want it as a PPOR then I might offer list price and it's just a harder negotiated version of 3.
Value has always been important to me. My first IP was advertised with a fixed price. I considered this a fair price and paid it without haggling since I considered this represented good value against comparative properties and yields.
2 and 4. irritate me as a buyer. I feel like the agent is the cat and I'm the bit of meat he's playing with. I want a straightforward amount that will buy the property (as per 3). In both cases where I've bought properties advertised this way I've offered below the asking price (or the lower limit). In one case I ended up buying it for less than the lower limit of the range. In the other (PPOR) I ended up paying a little ($700!) above the $X+. I did not protract the haggling as I believed it was value and knew I couldn't buy better (after researching housing stock in area).
5. Has the lack of anchor problem mentioned before. Will probably discourage most of the market for most properties. But not an issue for sophisticated buyers.
EFFECT OF ASKING PRICE
The actual figures can be (though they shouldn't be) influential. Say a fair price for a property was $200k. Advertising may be as follows for the various methods:
1. might be set at $200k
2. might be $180k+ (or for a Melbourne auction $160k+ )
3. might be $210k
4. might be $180 - 220k (or for a Melbourne Auction $160 - 180k)
Because I'm a value-seeking investor I might want it for $180k. But then that's me and I don't pay top price. Unless the vendor wants a quick sale, I probably won't be the buyer.
Admittedly a range like 4 would encourage me to offer below the lower figure more than 3. What I don't know about 4 is where the seller has put their price - is it midway in the range near the bottom or near the top? I won't know unless I put in an offer and see how far they come down to. As 1 was non-negotiable I might give that a miss.
But as an 'ordinary buyer' option 3 of the fixed price that's negotiable is most sensible and straightforward and might discourage stupid lowball offers more than a range with a low start.
If option 3 of a single price ($X) is sensible then I'm disposed to think - here's a straighforward vendor, the price is good value so I'll pay it in full with a minimum of haggle. The same applies to option 2 if the basic price is excellent value and the '+' is very small (maybe up to a few thousand).
If an asking price is not given, I'll try to get one out of the agent. And if it doesn't represent my idea of value then I either won't offer or will put in a cheap one. And if the latter, try to string the agent out (eg not come straight back to a counteroffer) or put a deadline. But in these cases it doesn't matter if I miss out on the property and there'll be another along to offer on before long.
As a final though, what's best for confident value-seeking investor buyers is different to Joe Average. And Joe Average provides the bulk of the market and may pay more than investors (at least for low-middle end property) it's important to have a sales method friendly to him. Because of its similarities with many other transactions, 3. above is it.
Other target markets respond to different sales methods. Others might be completely indifferent, only caring about the price and value of their purchase, not its sale method
Peter
(*) Though sales data is imperfect and if most properties don't even have asking prices then information is asymetrical and this becomes guesswork for most. The market becomes more imperfect due to poor information. Imperfect markets lead to more unequal outcomes (greater chance of paying too much or getting a bargain) but generally present more opportunities to savvy buyers.
