The Biggest Mistake Home Sellers Make And How To Avoid It

“What is the most important outcome when selling my home?”  Most people who have asked themselves this question would probably answer: “To achieve the highest possible price.”  If this is your most important goal then you are likely to pocket a lot less money than you could, like over 98% of all Australians who sell their properties.  Consider two scenarios where you either have the option of selling your home for $605,000 with $20,000 in selling costs, or selling for $600,000 with $5,500 in selling costs.  Would you still prefer the highest selling price, which would leave you with $9,500 less in your bank account?

The only way home owners will ever achieve the best possible result when selling is to change the way they think about and define what the ‘best result’ means.  The example of the two scenarios above makes it clear that there is a number that is far more important than how much you sell for.  If a dollar value is an important outcome for you, then it should be the amount you walk away with in your pocket, more than the sale price.  It seems like a no-brainer, yet most people who sell, including owner occupiers, investors and developers overlook this.

The best way to maximise how much you pocket from your sale is to think of every possible cost as an investment.  When you do this, you will seek to allocate your dollars to those costs that give you the highest return on investment.  When marketing your home there are many ways to spend your money, but every dollar you decide to spend is a limited resource, and so you should look to spend it in areas where it will give you the biggest bang for buck.

Again, consider two scenarios where you are selling a home valued – by a registered valuer – at $600,000, and which could do with a spruce-up.  The two biggest expenses you are likely to face in this instance are the costs of renovation and the real estate commission.  Let’s assume that the commission is $16,500 using the standard 2.5% plus GST.  If this was all the money you had or allocated for marketing, then you will have to decide the best way to spend it.

Clever cosmetic renovations often produce a three dollar return for every dollar spent, so if you chose to allocate the $16,500 in this way, you could increase the value of your home to $649,500.  If, instead, you chose not to renovate but to sell the home as is, you are likely to sell for $600,000 as per the valuation.  After paying commission, you will receive $583,500, ignoring the other costs that are normally associated with selling.  If you didn’t have to pay a commission to sell the renovated home, you would pocket $649,500, again ignoring the other costs associated with selling.  The difference in your bank account between the two ways of allocating your dollars is $66,000.

As a buyer, would you be likely to pay more for a home that has been tastefully renovated or for a tired property?  Would a good real estate agent likely change your mind?  If the real estate commission is to produce a comparable return on investment as the clever renovations, then an agent would have to sell the un-renovated home for $649,500, which is the same as what the renovated home would be worth.  What is the likelihood of this happening if all comparable sales for similar un-renovated homes is close to $600,000?  Even if an agent was able to sell the un-renovated house for $616,500, or $16,500 above other comparable sales, they would only be covering their commission.  There would only be a return of the investment, but no return on the investment.  How many of us would make a similar investment in shares or anything else for that matter?

Many people will see obvious flaws in the above comparison, so let’s address them.  Obviously, not all homes need renovations or indeed any money at all spent on them.  The above comparison simply illustrated the differences in typical return on investment for clever renovations, as opposed to real estate commissions.  In addition, most people will say that paying a commission is the necessary cost of having a professional to take care of the sale.  This is simply not true.  Most people should rely on an experienced marketing professional when selling, however, paying around 2.5% plus GST of the sale price is completely unjustified.  Thankfully there are better alternatives available for vendors that can help them maximise how much they can pocket from the sale, without compromising the sale price.

After years of helping people with marketing their home, I have found that real estate commissions are the costliest and worst investment anyone can make when selling their home.  Unfortunately, it is also an expensive mistake that costs Australian home sellers around six billion dollars each year.  Anyone paying a real estate commission is unnecessarily leaving many thousands, or tens of thousands of dollars on the table and making a big mistake.

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