“Moonshot” Pricing is a Risky Business

This year’s real estate market has me thinking about the popular motivational saying, “Shoot for the moon, for even if you miss, you’ll land among the stars.”  This is a useful idea in some aspects of life, but it doesn’t transfer into the real estate world all that well.  Or at least, not until we tweak the phrase a bit.  If you shoot for the moon and miss, will you ever really land?  You might just float in space forever.  And if you do land among the stars, it may be millions of years after you had hoped to land, and it won’t be a very pleasant landing.  “Don’t shoot for the moon lest you miss and land among the stars,” is less cheery, but it is useful in the real estate industry.

This will be the first year in a long time in which many of the homes that come to market in Yellowknife simply will not sell, for a couple of reasons.  For one thing, due to interest rate increases, the market is slower and inventory is building up – there are roughly twice as many homes for buyers to choose from as last year at this time.

But equally as important in my opinion, because of changes within our local real estate industry, buyers are now all working with their own expert representatives – “buyers’ agents” – who scrutinize the heck out of prices and will not (the good ones at least) let their clients overpay for homes.  Our brokerage introduced buyer agency to the NWT in 2012, but it wasn’t until late last year that it was finally adopted by our local real estate board as the default relationship between buyer and Realtor.

This is an important change to understand, and it’s what is top-most in our minds when we advise you on price.  When a C21 Prospect Realty agent provides you with a Comparative Market Assessment, we are not telling you what your home is worth – we don’t have a crystal ball and there are too many unpredictable variables to be certain of what will happen during the listing period.  What we are doing, rather, is telling you your home’s perceived value.  And by “perceived”, I don’t mean perceived by your neighbour, or your close friend who hopes to continue to get dinner invites, I mean the value as perceived by all the other Realtors in town whose job it is to scrutinize your home’s price and to make sure their clients don’t pay above market value.  That is our “target audience” – other real estate market experts.

Can we sometimes sell your home for more than what buyers’ agents perceive to be its value?  Absolutely, but to attempt to do so from the outset is very much like a moonshot.  We might get lucky and find that one buyer for whom your home is truly ideal (I think of it like trying to sell a Barbapapa house – kudos if you get this reference).  And this theoretical “perfect” buyer may be planning to live in it for decades, which makes overpayment more palatable.  But if we aim for the rare ideal buyer and miss, we may end up losing the interest of the broader home-buying public, and then we have to start dropping the price to get their attention back.  This often results in a sale price that is lower than what might have been achieved had your home been priced closer to its perceived value when it was first listed.  Or, in a worst-case scenario, we might end up like David Bowie’s Major Tom, floating out in space forever, with your home unsold and with interest declining by the day.  Or at least until next spring when we re-list, hopefully at a better price.

Getting your price right from the start is incredibly important.  But with that said, not all Realtors are great at pegging your home’s perceived value.  This is something we are particularly good at within our brokerage and we have the numbers to back it up.  It takes hard work and it sometimes requires uncomfortable conversations to price a home appropriately.  Whether in Yellowknife or elsewhere, some Realtors would rather simply tell homeowners what they want to hear.  It’s just an easier conversation to have.  They will not provide you with a physical document laying out a detailed pricing strategy – they may show you a few feature sheets but will mainly defer to your opinion of your home’s value.  “How much do you want for your home?,” they will ask you. And then they will do their level best to achieve your pricing goal.  Not the end of the world if you happen to be very objective and knowledgeable, but that’s not the case with most sellers and is one of the main reasons you hire a Realtor in the first place.

Moonshot pricing is a risky business.  It’s not impossible that it will be successful, but the higher you aim, the lower your probability of success.  It is your listing agent’s job to get you the highest price possible for your home.  But shooting for the moon only to sell it later for less than we might have with a better pricing strategy is a clear example of us failing at our job.