The Factors That Influence The Asking Price
Introduction
Do you know what factors actually influence the asking price of a property? Here I discuss the factors that do and do not realistically influence the asking price.
Factors that are likely important to the sellers
As the seller, you may (understandably so) have particular factors that are important to you that influence your asking price. Some of these factors may be common across the board for many sellers, while other factors may be unique to you and/or your circumstances.
In the image below, I have listed a number of factors that are likely important to sellers (represented by the pink ticks). This is by no means an exhaustive list.
Factors that are important to the buyers that realistically influence the asking price
Of all the factors on the list, only the latter two: sold prices achieved and asking prices of available comparable properties are important to the buyers (represented by the purple ticks), and therefore are the ones that realistically influence the asking price.
Why are the prices of comparable properties the only factors that are important to the buyers?
Simply put, sold and asking prices of comparable properties are clear and attainable evidence for all to see, especially for the buyers, that can offer an indication of the worth of a property of a particular type. In other words, only these two factors can show and have a significant bearing on what the buyers can get for their money.
Any seller must understand that the buyers’ view and perspective of a property matters most, and so the factors that interest the buyers matter most. After all, it is the buyers that ultimately determine the price/market value of a property, not the sellers.
Buyers naturally buy by comparison, which means that they will measure a property of interest against its sold and available comparable properties. And so, to get an idea of the value of our home and how to price it accordingly, we’d need to be seeing what the buyers see and understand how they would interpret the value of our home. For this reason, these two factors are the ones that we need to pay the closest attention to - I cover sold and available comparable properties in more detail elsewhere in this guide - click here to jump to that section.
Why do other factors not realistically influence the asking price?
The rest of the factors on the above list (or any other factor outside of the two important factors discussed) are more personal and subjective to the sellers, often offering no clear or attainable evidence that can be quantified into a value that can reasonably influence the asking price. In other words, personal and subjective factors generally tend to have no bearing on what the buyers can get for their money, nor translate into any discernible benefit or appeal to them (unless there is clear and attainable evidence to show otherwise).
These types of factors therefore hold no importance to the buyers and consequently have no realistic bearing, impact nor influence on the asking price.
Ultimately, it all comes down to the value that the buyers can get out of the property itself; because after all, buyer sentiment is the foundation of price.
However, with that said, it’s worth affording some consideration to the second factor on the above list, i.e. how much the seller spent on the property, as any seller may be concerned about not getting a return on their investment.
Can improvements to our home influence the asking price?
Understandably, any seller will want a return on their investment if they’ve made improvements to their home, naturally feeling that the amount of money (as well as time and effort) that they’ve spent ought to influence the asking price.
For clarification, I refer to ‘improvements’ to include any changes, additions or enhancements etc.
The question of whether improvements can influence the asking price should be considered on a case-by-case basis, including considering the level or type of improvements carried out.
Types of improvements
As I mentioned earlier, it all comes down to the value that the buyers can get out of the property itself, and that it is the buyers that ultimately determine the price/market value of a property, not the sellers. From the buyers’ perspective, they are not necessarily interested in what or how much is spent, but rather, are more interested in what they’re getting as a result of the spend. For this reason, I have broken improvements down into four types, starting at the top from the most likely to influence the asking price, down to the least likely:
Structural or major improvements
Non-structural or non-major improvements with added benefits or uses
Non-structural or non-major improvements that are in demand
Non-structural or non-major improvements with no added benefits or uses, and no evidence of demand
For clarification, ‘non-structural or non-major’ refers to improvements that do not change a property’s core or structure, such as a refurbishment or redecoration - this definition is based on the wording set out in the UK government’s website.
Structural or major improvements
Any improvements to a property’s core or structure will most likely influence the asking price.
For example, improvements carried out to turn a four bedroom property into a five bedroom property would almost certainly influence the asking price, as the number of bedrooms are a core or structural aspect of a property.
I discuss the meaning of ’structural or major’ in more detail elsewhere in this guide - click here to jump to that section.
Non-structural or non-major improvements with added benefits or uses
These types of improvements do not necessarily change a property’s core or structure but do offer added benefits or uses that are not offered elsewhere. For clarification, I refer to ‘benefits or uses’ to mean practical benefits or uses.
For example, if a kitchen is improved with added benefits or uses, then those improvements may influence the asking price, especially if those benefits or uses are not offered elsewhere (in other words, not offered by comparable properties), or if there is evidence of demand for them. This may be the case if a regular kitchen is upgraded to the style and function of a bespoke designer kitchen, and especially if comparable properties only offer a regular kitchen.
Non-structural or non-major improvements that are in demand
These types of improvements do not necessarily change a property’s core or structure, nor do they offer added benefits or uses - but there is nevertheless a demand for the design, style, quality or aesthetic etc, of those improvements.
For example, if a kitchen is improved but with no added benefits or uses compared to an unimproved average kitchen, yet those improvements offer a pleasing design, style, quality or aesthetic etc, that there is evidence of demand for, then it may influence the asking price, especially if it's not offered elsewhere.
This may be the case if there is a clear demand (i.e. market demand) for a kitchen that’s improved to a certain level or type of modern design (including fixtures, fittings or finish), layout, décor or workmanship etc (though more pleasing, offers no added benefits or uses compared to an unimproved average kitchen). Improvements with such a demand can possibly influence the asking price, especially if comparable properties only offer a more commonplace regular kitchen.
Non-structural or non-major improvements with no added benefits or uses, and no evidence of demand
As an example, if a kitchen is improved but with no added benefits or uses compared to an unimproved average kitchen, and there’s no evidence of demand for the design, style, quality or aesthetic etc, of those improvements, then it is not likely to influence the asking price.
Without clear and attainable evidence to show what or how much the buyers get from the improvements, or how it translates into any benefit or appeal to them, or any (market) demand for those improvements, it would be difficult to determine or quantify a value that can reasonably and realistically influence the asking price.
So if a kitchen is improved with a red décor, that improvement is not likely to influence the asking price, unless there is clear and attainable evidence to show that the market values a red décor kitchen (or a very similar décor). In other words, the market (i.e. buyers in general) may feel indifferent towards a red décor kitchen - they may see no benefit or appeal to such improvement, and therefore see no reason for it to influence the asking price; or to put it another way, it may have no influence on how much more the buyers are prepared to pay for the property (unless there is clear and attainable evidence to show otherwise). It may well be the case that the seller has a fondness for a red décor, but that fondness isn’t necessarily shared by the market in general.
Any influence it may have will be to sway the individual buyer’s decision due to their own personal taste or preference, rather than influence the asking price itself.
The improved kitchen in this case may appeal to a particular buyer whose personal taste or preference matches the design, style, quality or aesthetic etc, of those improvements.
So even if a red décor kitchen may not influence the asking price itself, it may be the case that red is the buyer’s favourite colour. For that particular buyer, those particular improvements may very well be the icing on the cake that tips their decision in the favour of that particular property over comparable properties where a red or similar décor kitchen isn’t offered anywhere else.
In other words, those improvements may not necessarily influence the asking price itself, but it may be enough to influence a particular individual buyer’s decision (with matching personal taste or preference) in one’s favour over the competition!
To be clear, although that particular buyer may favour a red décor kitchen due to their own personal taste or preference, such taste or preference is almost ‘unique’ to that buyer and not shared widely enough by the market (i.e. other buyers in general) to reasonably influence the asking price (unless there is clear and attainable evidence to show otherwise). In other words, the preference for a red décor kitchen may just be ‘personal demand’, but is not a ‘market demand’.
Ultimately, what or how much is spent on improvements have no bearing nor importance for the buyers - but the benefit or appeal of those improvements do!
Keep in mind that the value is what the buyer gets out of a property, not what the seller put in it.
Is it a good idea to price our home higher for particular buyers whose ’personal demand’, taste or preference would match our home’s improvements?
I would strongly recommend against this for the main reason that I’ve discussed, in that personal taste or preference is not shared widely enough by the market to reasonably influence the asking price (unless there is clear and attainable evidence to show otherwise).
I would also add the following reasons:
This is simply an arbitrary reason to justify overly ambitious pricing or overpricing, in that we’d be pricing our home above the market value - the result of which would cause it to be less saleable, not to mention likely landing it in a higher price bracket, becoming visible to only the wrong type of buyers, and missing out on our most likely and promising buyers!
Without clear and attainable evidence to show a (market) demand for our particular type of improvements (in this case, a red décor kitchen), it would be difficult to determine or quantify its value, benefit or appeal; meaning that it would be difficult to arrive at an appropriate price without the risk of overpricing!
Although a buyer may favour our type of improvements (again in this case, a red décor kitchen) over the presentation of comparable properties, it may merely be the icing on the cake for that particular buyer that tips their decision in our favour. Which means that it may only hold a slight advantage in favour for our home but is not necessarily a dealbreaker nor have a significant influence on how much more the buyer is prepared to pay for the property.
Our home may not be visible to this type of buyer at all if it lands in a higher price bracket and/or falls outside of their search/price criteria.
This type of buyer we want would form only a very small portion of our likely buyer pool, as there will be fewer of them, which means that there may not be enough of them to create the level of interest, competition or demand we’d need to achieve the best price.
And because there will be fewer of them, we are effectively forcing ourselves to play the longer waiting game for them to appear, allowing our home to stagnate and become increasingly stale on the market in the meantime while we are waiting - consequently diminishing the time value of our home!
Even for this type of buyer we want, they may only truly be able to appreciate those improvements once they are through the door and seeing it in person (especially if the property listing’s photos or video cannot sufficiently convey its appeal). If they are put off, deterred or discouraged by the asking price, then they are unlikely to come through the door at all!
I would suggest that rather than pricing our home specifically for these fewer buyers, it would be far better to be pricing it in such a way to attract as many buyers from our likely buyer pool (in which these fewer buyers would be included anyway).
Seller sentiment and bias
Even if the improvements do not influence the asking price, it may nevertheless be tempting for some sellers to still want it to be reflected in the price regardless.
Their thought process may be that if they believe the improvements made to their home are simply ‘magnificent’ and ‘attractive’ and/or ‘better’ than the presentation of comparable properties, then there are likely others who are bound to share the same opinion (regardless of evidence or lack thereof).
This type of thought process brings out seller sentiment and bias into play, which can not only greatly hinder one’s chances of being able to sell for the best price, but also one’s chances of being able to sell at all!
I discuss seller sentiment and bias in more detail elsewhere in this guide - click here to jump to that section.
Can a refurbishment or redecoration influence the asking price?
Generally speaking, a refurbishment or redecoration is classed as a non-structural and non-major improvement (based on the wording set out in the UK government’s website), and therefore not likely to influence the asking price (unless, as discussed earlier, there are added benefits or uses, or evidence of demand).
However, one may be wondering - what about a refurbished property compared to an unrefurbished property, where the state, quality and condition of one property is significantly different to another property?
This is of course a valid question that is worth considering.
Refurbished property vs. unrefurbished property
As an example, let’s assume that we have two very similar properties in the same area: Property A and Property B.
Property A has been refurbished, redecorated or modernised.
Property B remains unrefurbished and unmodernised.
The improvements carried out to Property A will most likely influence its asking price relative to Property B, as these two properties are clearly not on the same level as each other in terms of state, quality and condition.
The improvements will most likely influence the asking price if say, Property A was originally in the same state, quality and condition as Property B, but has since been improved to a more liveable condition, and especially if the property becomes one of the better properties in the area as far as state, quality and condition is concerned.
As a result of the improvements, the buyer will clearly get a property in a more liveable condition with Property A than with Property B.
Once again, the value is what the buyer gets out of a property, not what the seller put in it. The value comes down to the buyer(s).
If the value comes down to the buyers, are you suggesting that sellers have no say in the asking price?
No, I am certainly not suggesting that whatsoever. The buyers, or more specifically, the buyer sentiment, are the foundation (or starting point) of price. Sellers do have a degree of scope to determine or influence the asking price, but that scope is largely dependent on the buyer sentiment and the sellers’ own bargaining position. I discuss buyer sentiment, as well as the sellers’ scope to determine or influence the asking price in more detail elsewhere in this guide - click the links to jump to those sections.
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Getting in touch with me
If you would like to discuss any of the above points with me further, or if you need help or have any questions in general, click here to get in touch with me.
Earlier I explained that sold and available comparable properties are the factors that we need to pay the closest attention to - and so I invite you to come join me in the next section where I discuss comparable properties in more detail.