This article from Lawpack's Sell your own Home Kit discusses how to reach a figure when setting an asking price.
If you have done your research thoroughly, you know what your property is worth. Buyers do not generally offer the full asking price, so if you want to get the price you think your property is worth, you must add something extra to allow for this. Generally speaking properties sell for between 95 and 98 per cent of the asking price, depending of course on the state of the market. So if you think your property is worth £300,000 you must put your property on the market for a higher amount to allow for this. Also fix the price just below a round figure. Psychologically, a figure of £199,950 feels more of a bargain than £200,000 and £499,950 appeals more than £500,000.
If you are aiming to achieve, say, £300,000, an asking price of between £319,950 (6.7 per cent above what you hope to achieve) and £329,950 (10 per cent above what you hope to achieve) is what you should be aiming for. This rule applies at every price level even though asking between £525,000 and £550,000 for a property which you hope to sell for £500,000 looks greedy. It is worth remembering that at this level buyers are sophisticated enough to know that they can make an offer £50,000 below the asking price without being laughed out of court.
In Scotland the way prices are arrived at is a little different. Here a sellers' market philosophy generally prevails. The seller sets an asking price below what he considers the market value, inviting 'offers over' it. Of course, buyers will generally first offer below the full asking price and then negotiate, but others will be prepared to offer between 10 and sometimes 30 per cent above the asking price. In Scotland properties generally sell for between 10 and 15 per cent above the asking price. So if you are looking to achieve, say, £300,000, an asking price of 'offers over £270,000' is what you should be aiming for. (It should be added that this way of inviting offers is not uncommon in England when the market is strong, and likewise that in Scotland not all property is marketed at 'offers over' - a seller wanting a quick sale may market his property at a 'fixed price', telling buyers that the first offer he receives at that price will be accepted.)
Wherever your property is, the level at which you fix your asking price will also depend on:
The state of the market
If the market is busy and there are more buyers than sellers around, then you can afford to take an optimistic view in the hope of achieving more than your target price. Think about adding around 10 per cent to the price you want to achieve. If there are more sellers than buyers you should be more cautious. In this case think of adding four or five per cent only.
How many buyers you want to attract
If you want to attract as many buyers as possible, put it on the market with a low asking price, in the hope of attracting several offers. People will think they are getting a bargain but will probably be persuaded to pay more if they find they are in competition with other buyers. If your property is particularly desirable and you feel you may be able to sell it for more than it is worth, then add a generous amount to the asking price. This is a high risk strategy because if few buyers are interested and you don't get any offers, you will be forced to drop the price and quickly.
Stamp Duty Land Tax
Stamp Duty Land Tax thresholds can affect the asking price. Stamp Duty Land Tax is the tax which most people pay when they buy a property.
Current rates of Stamp Duty Land Tax
Purchase price £60,000 or less nil
Purchase price £60,001 to £250,000 1%
Purchase price £250,001 to £500,000 3%
Purchase price £500,001 or more 4%
In certain areas with high levels of deprivation, Stamp Duty Land Tax is only levied on properties over £150,000; this is known as Disadvantaged Areas Relief. If your property is worth between £60,000 and £150,000 you need to find out if it falls into this category, by doing a postcode check on the HM Revenue & Customs' website. Log on at www.hmrc.gov.uk, click on 'Individuals and employees', then on 'Stamp Duty Land Tax postcode search'.
If your property is worth around, or just over, one of the thresholds for Stamp Duty Land Tax, it may be difficult to sell at a price just above the threshold. This is particularly true of properties worth just over £250,000 when the rate of tax jumps from one per cent to three per cent. For example, the tax on a property selling for £250,000 comes to £2,500; whereas if the property sells for only £500 more, i.e. £250,500, the amount of tax jumps to £7,515. In these circumstances, you could add a generous percentage to your asking price in the hope of achieving well above the threshold. However, most buyers get to know what a property is worth and are unlikely to be fooled and your property could remain unsold.
Another alternative is to agree a price just below the threshold and negotiate an additional sum for fixtures and fittings which are not liable to tax. This is unlikely to result in a large uplift in the total proceeds of the sale because the Inland Revenue has recently tightened the rules on fixtures and fittings with the result that buyers are now reluctant to pay over the odds. If the Revenue considers that the sum paid for fixtures and fittings is inflated they will conduct an investigation, as this amounts to tax evasion. If you are planning longer term, your best bet is to find a way of improving your property that will lift it into a higher price bracket.