It’s human nature to sell your house at the highest price because this maximises your profits. However, in doing so, you might be questioning why your house is not selling, or is taking a longer time to sell.
Let me examine a common problem many homebuyers and landlords are not always aware of:
The bank valuation determines the value of your house
Before lenders issue any buyers a mortgage, they will always inspect the property to estimate the current value. This is a bank valuation.
In competitive housing markets, the valuation of your house price will often be lower than your expectation. That’s because lenders do not solely assess buyer demand.
Instead, lenders value your house in accordance to historic sale prices of similar properties in the same area. Read my previous post on how land value is calculated.
Why your house is not selling
When a person buys a home to live in, a 5% to 20% deposit is required, depending on the lender’s criteria.
So, let’s assume a property is priced at £200k and the buyer pays a 20% deposit, which is £40K. This means the lender funds the remaining £160K.
However, it is not always that simple. A bank valuation could deem that the property is too expensive and the worth is actually £150K. This means the buyer’s deposit is reduced to £30K, which is 20% of the original £150k asking price.
There is a big problem here. If you want your original asking price of £250K, the buyers must pay an extra £50K to compensate for the difference between your requested asking price and the lower bank valuation (£200K – £150k).
This extra £50K is in addition to the 20% deposit (£30K), as well as the stamp duty fee, conveyancing cost and bank fee, at a very minimal.
Buyers with more cash buy better houses
A person who has enough cash to fund this amount is likely to use the money as a deposit for a larger or better house. You need to keep this in mind if you decide to over-price your property.
In such a situation, it’s probable that only a cash buyer can afford to purchase your home. There are not as many cash buyers than there are mortgage buyers, and so, this can be a big reason why your house is not selling.
Or, another common scenario is that a buyer will negotiate a lower selling price due to the low bank valuation. Being desperate to sell puts you in a vulnerable position. Time has been wasted and a bank valuation is not free.
Though it’s ideal to sell your property for the highest price, you also need to consider what buyers can realistically afford.
So, have you had problems with your house not selling?
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