When a property is put on the market, agents will provide the vendor with a recommended sale price based on their specialist knowledge and understanding of the current market. Ultimately though, the listing price of a residential property is at the vendor’s discretion. Properties are often brought to the market initially with a higher than recommended sale price in the hope of maximizing profit.
Buyers are savvy and will be looking at and comparing many other properties at the same time. As a result, overpriced properties tend to sit on the market for a long time either until they are eventually removed from the market or are reduced in price to compare more favourably with other available properties.
Even if the price is not reduced, any offers received are likely to be at a market-comparable price. In many cases, the overly high price results in reduced viewings and there is a real danger that a property will simply become stale even if the price is eventually reduced.
There are many examples of properties selling for less than they would have had they been marketed at a more realistic price initially.
So vendors must balance the very real prospect of failing to realise the optimal sale price with their natural wish to get the highest possible price.
What is the right price?
An individual property may be sold at a higher or lower price than the market would normally pay. Buyers and sellers have their own reasons for the sale price they agree and this does not necessarily reflect the true value of the property.
A ‘fair’ or benchmark price is a price at which a large number of people would agree to buy or sell a particular property at any one time.
This is easiest to determine when you have a large number of properties which are very similar (such as a new-build block) and much harder when your pricing points relate to lots of very different property types.
How do Bricks&Logic create a benchmark price?
Each property sale has some effect on every other property depending on how closely related they are in terms of location, characteristics and time.
At the heart of Bricks&Logic is a model for residential property valuation which is able to compare all available pricing data, both locally and further afield, with your selected property.
The model takes into account changes in values over time as well as the normal price differences between properties of different sizes, locations, conditions and more to convert sales or lets of other properties into simulated sales or lets of your chosen property.
The result is the Bricks&Logic price benchmark which utilises all available pricing data in order to accurately assess the market and determine the most likely sale price for your chosen property.
Example: Flat in NW6
This property was first listed in June 2020 at £425,000. The Bricks&Logic price benchmark at the time was £390,000. It remained on the market unsold and in January 2021 was reduced in price to £400,000 when the Bricks&Logic price benchmark was £386,000
The property finally sold in May 2021 for £380,000 when the Bricks&Logic benchmark price was £385,000.
On the graph below, we can see multiple nearby sales over time converted into prices for this property taking into account the differences between them.
Of course, buyers will always under- and over-pay but the price benchmark is clearly supported as the best fit between the sales.
Another way of looking at the same pricing data, this time holding time constant but showing the variation in the property price versus size on a £.sqft basis.
In both graphs, the data clearly supports the suggested benchmark with a few outliers.