Up until recently, there were 2 common ways you could figure out the value of your property:
1. Contact a real estate agent and invite them round to your home to give you a ‘free market appraisal’ and have this awkward situation where you want to know the answer but you don’t want them to hound you every 2 days with a phone call until you sell.
2. Pay anywhere from $600 – $900 for a registered valuation.
Doesn’t this seem inefficient?
- We have apps on our phones now which instantly tell us the value of any stock or index fund we own.
- Our bank balance can be checked through online banking at any time of the day or night and transactions show instantly.
- Most of us can check our kiwisaver balance by logging in to a website or through online banking.
- We can even check the approximate value of our car by going onto trademe and looking at asking prices of vehicles similar to ours.
- We can look-up basically any product we want to buy online and get the price straight away.
Surely it stands to reason then, that there should be a better way to ascertain the approximate value of our biggest asset (our home).
Have you visited this site before? If you haven’t then I strongly recommend checking it out. You can look up any property in NZ and check its approximate value without paying a cent, whether you own a home or not.
You can even download their app and check the estimated value of other properties in your neighbourhood while you are out walking your dog.
How cool is that?
What does this mean for real estate agents?
For many years now, the key marketing pitch of most real estate agents has been to offer the general public a ‘free market appraisal’. Pick any suburban area in NZ and it would not be uncommon for property owners to come home to find 3-4 flyers in their letterbox, all from different agents, all offering exactly the same thing – a ‘free appraisal’.
These letterbox fillers are especially prevalent when there is a shortage of property on the market and prices are rising.
It has to be one of the most successful lead generation methods of all time. For any industry.
Does the ‘free appraisal’ model really work?
Due to its popularity, it would seem that it does. In the past, they have been an extremely effective way for salespeople to meet property owners who might be 6-12 months away from selling. This helps them build a database and a pipeline of potential future clients.
Offering something for free is always an effective marketing idea as it kicks into play the ‘law of reciprocity’ where homeowners feel indebted to the agent for providing this free service and are therefore more likely to use them when it comes time to sell.
Side note: How accurate are agent estimates?
Agents are taking an educated guess at what your home will sell for. You will often see them using a $40k – $100k range in their pricing estimates. Any agent who tells you that they can value property to within $5 – 10k of it’s selling price is to be avoided in my opinion. These agents are either know-it-all types or they simply aren’t testing the market sufficiently with a proven competitive process when they sell property (think Auction, Tender).
Agents that put every property on the market with a price can usually be more accurate with their appraisals but you’ll never know if they are really getting you the best possible result when it comes time to sell.
It’s time for a bit of a shakeup. In this day and age, you should be able to get an estimate of the value of your home without having a face to face meeting with a real estate agent.
This would help you avoid the key problem with free appraisals from real estate salespeople:
Agents could be incentivized to give you an inflated estimate.
Many salespeople are not that good at explaining their key points of difference over their competitors. So, the home owner often picks the agent who quotes them the highest appraisal price, because they have no other basis on which to make their decision.
Once a salesperson gets the exclusive listing you are locked in with them so if the ‘market price’ turns out to be a bit lower than their appraisal you are likely to go with it anyway because you are well through the process by the time it comes to reviewing any offers. And changing agents at that point isn’t that easy (you are usually tied in for 90 days with one company).
Salespeople can end up in bidding wars against each other trying to ‘win the listing’. On top of this, the honest, reputable agents who are likely giving you the most accurate estimate of value don’t even get a look in because you are attracted to the higher prices quoted by everyone else.
What’s the answer?
I am going to recommend something that might sound crazy:
I am going to recommend your first interview with a real estate agent you are looking to hire should occur well before they view your home. On top of that, it should be at their office, or over a skype call.
Remove the pricing estimate as a factor in your decision when choosing an agent. It doesn’t matter what they say it’s going to sell for. What does matter is:
- How are they going to attract as many qualified buyers as possible to your property?
- What are the most efficient and cost-effective marketing channels available?
- How are they going to help those buyers create an emotional connection to your home, while they are there and after they have gone?
- What process are they going to use to give them 1, and only 1 opportunity to buy it? Preferably in competition.
Most of these questions can be answered well before they visit your home.
What’s going to happen to all those ‘free appraisal’ agents then?
Agents who want to protect their relevance will need to offer other services of value to home owners. They will need to produce marketing material that helps you answer questions other than… ‘What is my house worth?’
- How to create competition amongst buyers for your home
- How to present your home to obtain maximum possible interest
- When is the best time to sell?
- What renovations add the most value prior to selling?
- What method of sale (Auction, Tender, Asking Price) will secure the best possible price in a reasonable amount of time?
- Where should you buy an investment property? What kind of property should you look for?
Salespeople who answer these questions and send this kind of information out to their clients and their communities (without prompt and without asking for anything in return) will be seen as the local experts.
Smart agents will position themselves as ‘competition creators’ rather than ‘property valuers’. You will see them as marketing experts / negotiators-for-hire who you will employ to maximise your net worth when it comes time to sell your home.
PS. Trademe Property Insights is another free resource we you can check estimated values, although their site doesn’t seem to cover as many properties.
PPS. If you are thinking of selling and would like an agent recommendation you can email me for advice. Through my real estate marketing and software background I have collaborated with, and trained thousands of real estate agents all around NZ. I can tell you exactly who I would personally use in most towns, suburbs or Cities. Don’t go with a random guess. This is your biggest asset and it’s important that you have the right representation.