I know, I know – it sounds like something a salesperson would say!
But just hear me out! Looking both higher and lower than your target price point will help you to determine what you want in a house or condo…
Oh sure, let the salesman speak…
“Hey guys, I know you’re looking for a $500,000 house, but why don’t we take a look at this one here, priced at $600,000?”
It sounds like BS, but it’s not. Just trust me on this one…
Every time I get an email or a phone call from a new buyer, the conversation always starts the same way: “Well, we’ve been pre-approved by the bank for $550,000, but we only want to spend around $400,000.”
I’m not the first cynic that will tell you how banks are approving massive loan amounts to people who don’t necessarily want them, and, debatably, who shouldn’t be getting them.
But you won’t be the first cynic who will say that I’m pushing my clients’ boundaries when I tell them to look outside their price point!
However, I do this because I think it helps them focus in on what they really want. And believe me – most buyers think they know what they want, but in practice, they don’t.
I have a theory that there are three major factors when it comes to searching for a house or condo:
These three factors are all intertwined, and more importantly, the presence of two of them will help to fill in the third.
For example, if you know that you want a hard loft of about 800 square feet with a large kitchen and high ceilings (STYLE), and you want to live in the Queen West area (LOCATION), then as a result, you can determine that you’ll be in the $450,000 ballpark (PRICE).
A + B = C
And price, location, and style can be any of A, B, or C.
If you know that you want to spend $300,000 (PRICE) in the St. Lawrence Market (LOCATION), then you’ll end up with a 650 square foot unit in an older building, or perhaps a 550 square foot unit in a newer, more modern building (STYLE).
We can work this equation all three ways, and although you’re already ahead of me, I’ll demonstrate the last point.
If you want a 3-bedroom, 2-bathroom, detached house with a private driveway and a large backyard (STYLE) and you can afford a maximum of $150,000 (PRICE), you’ll have to extend your search to Valdosta, Georgia (LOCATION).
So having said all of this, you can see why I encourage my clients to look out of their target price point in order to fill in the blanks.
I know this seems ironic, given that I’ve been writing about personal debt lately, but I’m not telling my clients to buy a $900,000 house when they’re comfortable at $600,000. Let me explain with a real-life example.
On Thursday night, I’m taking out two new clients who are shopping for a condo in the $400,000 price range. They’ve given me a whole laundry list of things they want: second bedroom or den, second bathroom, large balcony, high ceilings, modern design, upgraded kitchen, open concept floor plan, parking space, locker, etc, etc. The reality is, you’d be hard pressed to get this for $400,000, if you include everything on this list.
So my job is to figure out what is important. What are the must-have’s and what are the nice-to-have’s?
What are the deal-breakers?
I can find you a spacious 1,200 square foot 2-bed, 2-bath with parking for $340,000, if you’re willing to commute from Markham Road every day. No? That’s no good? Okay, so now we’ve reigned in location.
I’ll be showing these clients a variety of properties ranging in price from $364,900 to $439,900. The reason I’m showing them a property that is a full 10% above their price point is threefold:
1) If the price is negotiable, and we can get it for, say, $420,000, then they’re only 5% above their ‘target,’ which is more of a psychological barrier.
2) This unit has everything they want, and if they determine they can’t afford it, then they realize they have to compromise on something.
3) It shows them what “the next level” truly is, and puts things into perspective.
Now on the flip side, I also show them properties that are priced significantly lower than their target.
A few weeks back, I had a retired couple purchase a unit that was about 15% lower than their target.
They walked into this condo and basically said, “I could live here.” They looked at one-another and said, “Do you need more than this? Does this work? Could you live here?”
The result was that they bought something for $35,000 less than what they had intended on spending. They saw larger units at their target price point and decided that they didn’t “need” that much space. So why buy that space if you won’t use it?
I did the same thing with this retired couple – I showed them units above their price point, and they weren’t interested. We looked at things right at their target, and they were quite interested, but it wasn’t until we saw something significantly lower than what they assumed they would spend, that they realized what they truly wanted and needed.
And that is the entire point of this post.
Many buyers don’t truly know what they want and need until they’ve seen it all.
I have buyers send me MLS listings for condos and houses that they’re “really, really interested in seeing,” only to get them inside and have them say, “this is not at all what I’m looking for.” In today’s modern age of MLS, buyers will send me 20-30 listings, and I’ll weed through them as best as I can. But if a buyer, who is interested in hard and soft loft condos, really wants to see that “big, open, value-play” at 330 Adelaide Street, I’ll show it to them. Only once we get inside and see that the “value” exists in doing a $25,000 renovation, AND getting $25,000 off the asking price, then the situation changes entirely.
We have that old saying in my business: “buyers are liars.”
Well, no. It’s not that they’re setting out to lie. It’s just that they don’t know quite what they want.
And how could they? I see 30 houses and 30 condos every single week, every month, every year. How many does the average buyer see, before he or she ever sets out to buy? About zero? That is – zero through the eyes of a buyer? Sure, that buyer might visit a friend, family member, or colleague, but without being in a buyer’s mindset, they won’t really look about the property through a buyer’s eyes.
We can’t expect a buyer to know exactly what he or she wants, right from the initial phone call.
Thus, I like to take my buyers to see properties above and below their targe price point.
It’s all intertwined – price, location, and style.
Most buyers wouldn’t object to seeing properties in different locations or of different styles, so how could price be any different? It’s not as if I’m trying to push a buyer into a financial bind, but rather it’s part of the qualification process.
If A+ B= C, then how can you completely ignore one of those variables?