Category: Listings

Pricing Clinic 3: Ok, But I Still Want More

Al had the listing agreement on top of his clipboard and the pen in his hand poised over the blank labelled Listing Price.  ‘So we agree then?’ he asked, ‘We’re thinking $285,000?’ 

Again, Bob and Carol sat back and looked at each other.  Al watched as a little ridge of skin formed between Carol’s upraised eyebrows.  Darn! he thought, Here we go again!

‘Um,’ Bob began, ‘We’re thinking more like $320,000.’ 

The emotion never made it to his face, but inside Al was shouting. I didn’t realize we were bargaining over a Louis Vuitton knock off on a Tijuana sidewalk! he thought.  This is nuts!  We’re in a bidding war and the house isn’t even on the market! I should just walk!  But then he resolved to make one more attempt.

‘$320,000?’ he began.  ‘We’re getting closer.  But that’s still, what?’ he reached under the stack of slick graphics now littering the kitchen table and extracted the Market Analysis, ‘About 12% higher than the market will allow.’  Bob and Carol followed his hand back to the facts of record.  Then he pointed to a property in the ‘Currently on the Market’ section.  ‘Remember, this is your competition,’ he said.  ‘It’s brand new, the buyer can choose carpet and colors, and it’s got a two car garage, compared to your car port;  and it’s priced at $284,900.’ 

‘Yeah,’ said Carol, ‘But not everybody wants a new house . . . ours is cozy and lived in, and the yard is already established.’ 

Al sat quietly for a moment, thinking.  He knew the worst thing he could do would be to argue with Carol about the merits of her decorating or the condition of the lawn.  Slowly he reached back into the stack of tools in his clipboard. 

‘Here, take a look at this,’ he said.pyramid

‘Ooo,’ cooed Carol, ‘It’s pretty!’ 

‘Yeah,’ said Bob, ‘What is it?’ 

‘This is the Pricing Pyramid,’ answered Al.  ‘What it shows is when you price at Market Value — which we’re saying is between $275,000 and $285,000 — 60% of the potential buyers for your property will consider it.  40% will either never learn about it for one reason or another or they’ll eliminate for some other reason — perhaps one of their criteria is a garage rather than a carport.’  Once again, Bob and Carol were leaning over, intent on the diagram and following Al’s pen as he directed them through it. 

‘Look what happens when you price at just 10% above Market Value.’  Al paused.  ‘ In your case, that would be about $310,000.  You cut the number of potential buyers who will consider your house in half!  And, truth is, you want to go closer to 15% over and look what happens:  finding a buyer for your home is like trying to find a needle in a haystack.’ 

Al resisted the temptation to go further with his explanation.  He’d made the point and now it was time to let Bob and Carol absorb it.  He started counting: one-Mississippi, two Mississippi, three Mississippi, four Mississippi . . .  And then Bob looked up.

‘So you really think $320,000 is too much?’ he asked.

‘Bob, it’s not me,’ answered Al, ‘It’s the marketplace.  That’s what really dictates value and I’m sorry it’s not cooperating in this instance.’  He stopped for a moment and settled back in his chair.  ‘Remember all of that marketing I’m planning to do to get your house sold?’ he asked.  Bob and Carol nodded. 

‘I was impressed,’ said Bob.

‘Great,’ said Al, ‘I’m glad you were.  But here’s one of the great truths about marketing real estate:  the most important part of it takes place right here and right now.  We can choose a listing price that lets the marketing do its job; or we can choose one that cripples it and cuts its effectiveness in half.  Since finding the best buyer for your house is a matter of exposing it to the largest number of potential buyers, my strong recommendation is to price it where the largest number will see it:  at Market Value.’ 

Al watched as Bob reached over and took Carol’s hand.  She looked back at him and Al was certain he saw the slightest nod of her head.  Finally! he thought, We’re going to agree!

 . . . to be continued . . .

Pricing Clinic 2: I can always come down

‘Ok,’ said Bob,  the seller,  ‘I get what you’re saying.  This is a great time to buy and the loss in value I might have with this place will be more than offset by the greater loss in the house we buy.  But, still,  I want to get every dime I can out of this place in the process.’ 

‘And of course, that’s one of the reasons you called Help-U-Sell,’ Said Broker Al.  ‘We’re going to help you do that by saving you some commission expense.’ 

‘Right,’ answered Bob, then glancing over to Carol.  ‘But I want to start higher than $285,000.  I mean, I can always come down . . . and who knows?  Maybe next week you’ll come by with someone who falls in love with the place and is willing to pay more!’ 

Al tried not to make a face . . . but he was unsuccessful.  ‘How much more?’ he asked.

‘Why don’t we start at, say:  $350,000.  People are going to make offers anyway, and like I said, we can always come down.’ 

‘There are at least half a dozen reasons why that’s not a good idea,’ said Al.  ‘Let me share just a couple.’

‘Oh, sure, Al,’ chimed in Carol, ‘You’re the broker.  Your job is to get this listing as low as possible, right?’ 

‘Not at all.  My job is to get you the best transaction we can pull from the market, which means: best price, most walkaway dollars and a minimum of surprises and inconvenience for you.  My job is also to save you money over what you’d pay an ordinary agent.’  Al was taken aback and it showed.  How could they be this far into the process and the sellers not trust him?  Carol saw his discomfort.

‘Oh, come on, Al,’ she chirped, reaching out and grabbing his knee for a moment, ‘I was just teasing.  Go ahead, tell us why we shouldn’t try to get more.’ 

‘Well first there’s the appraisal.  Unless we get a cash buyer — which is pretty unlikely — the lender is going to insist on an appraisal and they will only make a loan based on the value reported in the appraisal.  Now, I’m not an appraiser, but they work with the same information I used to do your market analysis, the same comps, prices, days on market . . . and they’re almost certainly going to get the same result I got:  Something between $275 and $285.’  Al took a moment to let that sink in.  ‘Can you see how the appraisal keeps people from over-paying for a house?’ 

‘Well, yeah,’ said Bob, ‘but still, we can always come down.’ 

‘If you get a chance,’ interrupted Al.  ‘Here; take a look at this.’  He again pulled at a laminated sheet in his clipboard.

window

‘You have a narrow Window of Opportunity when you first put your home on the market.  The day it hits, there is a bucket of potential buyers out there for whom it might be perfect.  They’ve been in the market for awhile and they’ve seen everything that’s out there.  Your house is fresh and new and they’re all going to want to see it.  Really:  the first month your house is on the market is when the greatest traffic — and therefore the greatest chance of getting a good offer — occurs.  After that, the backlog of people who have been waiting for a house just like  yours to come up is gone, and you’re left with just new buyers trickling into the market.’  Al paused and looked over at Bob and Carol.  They were leaning forward over the table, studying the graph. 

‘What happens when you overprice,’ continued Al, ‘is that you hit the wrong bucket.’ 

‘Huh?’ said Carol, her brow knit and her head cocked to the side.

‘If you price at $350, you’re going to find that backlog of buyers who have been looking at $350,000 houses all along, and to them, you house is going to look like less than what they’ve been seeing for the same price.  Your house might actually convince them that that bigger house a few miles away is a pretty good deal after all.’  Al noticed that Bob was starting to nod.  Yes! he thought, He’s with me!

‘The people who are looking for a house like yours are probably never going to see it.’ Al said . . . and shut up waiting for a reaction.

‘What do you mean?’ asked Carol.

‘ People looking in the high $200’s — which is where your home will probably sell — will have told their agents not to go over $300, and they’ll never even see that your house is on the market.  And if they do stumble across it by accident, it’s just going to look overpriced to them.’ Al took a breath and sat back.  The defense rests, he thought.

Finally Carol chimed in.  ‘You know, Bob, he’s right.  I remember when we were looking for this place.  After awhile I could tell when something was overpriced. Couldn’t you?’ 

. . . to be continued . . .

Pricing Clinic 1: I’m Just Gonna Wait

‘So, according to the Market Analysis,’ said Broker Al, ‘we should price your home between $275,000 and $285,000.’

There was a long pause. Bob and Carol slowly sat up and exchanged concerned glances. Although it seemed as if a decade had passed, Al said nothing. He knew this was a closing situation and remembered what Tom Hopkins had told him to do at times like this: Shut Up!

Finally, it was Bob who spoke. ‘I know the market has dropped . . . I mean, this place was worth about $400,000 not too long ago. We just can’t afford to lose that money.’ He looked back at Carol. She was nodding. Bob continued, ‘I think we’re just going to wait until the market comes back.’

Another long pause; but this time it was Al who slowly sat up.

‘I know it seems like you lost a lot,’ he began, ‘ But, truth is: you gained.’

‘Gained?’ asked Carol, ‘How do you figure?’

‘Here, let me show you.’ Al pulled two laminated sheets from his clipboard.

‘According to the National Association of Realtors,’ he began, ‘Trade up buyers — that’d be you — tend to buy 50% more home when they move. They spend 50% more than the price of the home they sell.’

‘In your case, using the peak value of your home, that means you’d have sold for $400,000 and probably bought something at around $600,000.’

price1b

‘Whoa!’ said Bob, ‘We can’t afford $600,000!’

‘Of course not,’ answered Al, ‘But back when your home was worth $400,000 that’s probably what your dream home would have cost.’  Carol looked skeptical. 

‘Now,’ said Al,’Let’s assume prices drop 30% . . . which is a good guess, because that’s about right.’  He picked up the second sheet.  ‘Here’s what you’d be looking at.’

  price2

‘Your $400,000 house is now worth $280,000 and you feel like you lost $120,000 — but you really didn’t lose it.’ 

‘We didn’t?’ asked Carol.

‘No,’ replied Al.  ‘Because we’re not really talking about dollars here, we’re talking about value — and that $600,000 house you’ve always dreamed of is now worth $420,000 — a drop of about $180.000.’

‘Oh, we can probably afford that,’ said Bob.

‘Of course,’ replied Al.  ‘And the good news is:  you’re actually ahead of where you’d have been a few years ago.  The drop in value has been greater in your trade up house:  $60,000 greater.  That’s $60,000 you won’t have to finance . . . ‘

‘Oh, don’t worry,’ laughed Carol, ‘We wouldn’t have qualified anyway.’

‘Right,’ chucked Al, ‘But that additional $60,000 could mean as much as $115,000 in mortgage payments over the life of a typical loan.’ 

‘So, I guess you’re telling us to go ahead and take the hit now?’ asked Bob.

‘It’s not really taking a hit,’ answered Al, ‘It’s taking advantage of an opportunity.  After all, your dream home will never be less expensive than it is right now.  Despite what you read in the papers, this is actually a great time to buy!’ 

This was followed by another long pause, one that was far less uncomfortable for Al.

 . . . to be continued . . .

Stop! Don’t Take THAT Listing!

The rationale for Help-U-Sell’s set fee pricing has always been that a sharp, well-informed broker knows roughly how long it will take to sell a properly priced listing and what it’s going to cost to accomplish that task.  There’s a lot in that statement:

Let’s start with ‘well-informed.‘  Set fee pricing begins with a thorough Market Analysis.  You have to know how the market behaves before you know how long and at what cost it’s going to take to sell the average listing.  You have to know the turnover rates, down to the smallest geographical distinction, so you can target effectively.  You have to understand your individual market’s seasonality so you know when to gear up and when to gear down.  Until you know how your market behaves you’re in no position to offer set fee pricing.

Now consider ‘at what cost.‘  A brand new Help-U-Sell broker sets up his first marketing plan as a ‘best guess.’  He has no data on which to judge the effectiveness of any marketing he might do because he’s never done any before.  So he guesses.  And then he does what all true marketing companies do:  he tracks results.  Soon he knows what’s working and what isn’t.  He makes adjustments and continues to track.  Soon he can tell you how many leads each bit of marketing he’s done has produced.  And he makes a few more adjustments.  After awhile, the marketing plan gells,  marketing expense becomes predictable, almost fixed.  It varies, but just slightly and then by plan, not by whim. 

Marketing is usually the biggest variable on the balance sheet, so once it’s locked down, the broker knows what it costs him to operate on a daily, weekly and monthly basis.  Considering  this figure (plus a reasonable profit) along with:  average days on market, time between contract and closing, % of listings that sell and close, seasonality and the number of listings the office usually has in inventory — the broker can tell you roughly what it will cost to market and sell a properly priced listing at this time of year.  It’s this knowledge that enables the broker to set his fee.

BUT, there’s another key phrase in that opening statement, and it’s the most important of all:  a “properly priced listing.”   A properly priced listing will sell within the average number of days on which your plan was based.  An overpriced listing will take longer — if it sells at all — thus costing you more than you planned to spend. 

I’ve had brokers stop me at this point and argue that a few overpriced listings that take a little longer to sell don’t really cost that much more to market and besides, the sign exposure is a big plus.  OK.  I get that.  Just remember:  every day you have a listing, it’s costing you money.  They aren’t free.  You have an office expense, you have a marketing expense, you have the cost of your time and energy (which, oh by the way, is finite), so the listing that does not perform within the parameters you used in setting up your plan and your fee is a drain.  How many of them can you afford to have? As to sign exposure, how beneficial is it to your image in the marketplace for that For Sale sign to be up month after month until the weeds grow up around the bottom of it, the grommets rust and it begins to lean?

Here’s my point:  you can’t afford to routinely take overpriced listings.  Doing so will absolutely blow your carefully constructed set fee pricing right out of the water and you will lose money.  Should you ever take an overpriced listing?  Sure, but only if it’s close, and only with the seller’s full understanding that you believe it’s too high, and with a commitment to revisit price in 30 days.

One of the things you must do as a Help-U-Sell broker is to become a pricing warrior.  You have to be the Hercules of pricing.  You have to be so strong and convincing when presenting price that your sellers don’t hesitate to follow your lead.  That means you must practice, drill and rehearse your dialogues.  You have to massage your MLS and marketplace stats until they throb.  In short, you have to know your stuff.  And knowing your stuff is always the starting point to delivering excellent service to  your clients.

The Elevator Speech

You’ve got one, don’t you?  You know: an elevator speech! 

It’s the 60 second or less description of who you are and what you do that you will use over and over again, just about every day in your career.  The elevator speech should differentiate you from your competitors, make you stand out and above all, distinguish you as an alternative to the status quo. This is the biggest reason your more traditional competitors don’t have elevator speeches:  they are all pretty much alike, with little to distinguish one company from another beyond the logo and the colors.

Here’s an elevator speech from a traditional real estate practitioner:

‘Um, well . . . we’re a full service firm and um . . . we list and sell real estate, and . . . we’ve got a great sign and of course there’s the MLS and you’ve seen our ads in the paper, right?’  . . . and so on. 

It is essential that Help-U-Sell people have an elevator speech because you are different.  Consumers sense this from the name or from what their neighbor said, but they’re usually not sure how you are different.  The elevator speech, rehearsed and internalized until it becomes automatic, powerfully establishes you in the consumer’s mind with a distinct identity — one that is very attractive! 

Here are the points your elevator speech should make:

  • You are a REALTOR
  • You do everything the others guys do and more
  • You charge a set fee instead of a commission
  • You save consumers a lot of money over what they’d spend on a traditional commission arrangement

Here’s an example of a typical Help-U-Sell elevator speech:

(You get on a fairly full elevator on the first floor and punch the button for ’17’.  You notice one of the other passengers staring at your name badge.  ‘Help-U-Sell, huh?’ she says, ‘What do you guys do?’)

‘We’re full service REALTORS.  We do everything all of the other REALTORS do — and more — but instead of a sales commission, we charge a low set fee, which can save you thousands of dollars.  For example, the median price single family home here in Springfield is about $220,000.  A typical 6% real estate commission on that would be $13,200.  We’d sell the same property for a low set fee of $4,950, a savings of almost $8,000.’

Notice that the speech is customized to the local market at the end, an important element in bringing the power of your program home.  If you happen to be in a situation where you have a little more time — say 10 seconds more  — you might even personalize the speech for the person with whom you are speaking:

‘We’re full service REALTORS.  We do everything all of the other REALTORS do — and more — but instead of a sales commission, we charge a low set fee, which can save you thousands of dollars.  For example, may I ask the approximate value of your home?’

‘Well . . . about $250,000 I guess.’

‘A typical 6% sales commission on that would be $15,000.  We’d get the same result and only charge $4,950.  That’s about $10,000 in savings!’

The point of an elevator speech is not just to quickly an succinctly distinguish yourself from other real estate companies.  It’s also to leave the other person hungry for more information.  Typical responses to good elevator speeches are:  ‘Really?’ ‘ How are you able to do that?’  and ‘Tell me more!’  All are an invitation to elaborate. 

You’ll use your elevator speech when you are face to face with a consumer (and you want to always wear your name badge to encourage the question), but you’ll also use it when the telephone rings in your office.  Seller inquiries often begin with the question, ‘What do you do?’   Any time you hear it — or anything similar — it’s time to trot out the elevator speech.  I’d suggest you always personalize the speech when you get this kind of inquiry because it helps start the process of getting information from the caller that will continue as the call progresses.  Here’s an example:

‘Help-U-Sell Acme, may I help you?’

‘Yeah, um . . I saw one of your ads and I was wondering, what exactly do you guys do?’

‘We are a full service real estate firm.  We do everything all the other REALTORS do, and more, except that instead of a percentage based sales commission, we charge a low set fee — which can save you lots of money at closing.  For example, may I ask the approximate value of your home?’

‘Oh, I dunno . . ’bout $300,000′

‘Well, a traditional broker with a 6% commission would charge $18,000 to sell your home.  We’d do the same thing for $5,950 — which would save you about $12,000.’ 

‘You’re kidding!  How are you able to do that?’ . . . and so on.

Notice that each of these example speeches end the same way:  with the savings a seller might achieve by working with you.  That is the most powerful story you have to tell and it is important that your elevator speech leads up to it. 

You may be wondering how you might use the elevator speech with a prospective buyer.  First, let’s distinguish between the casual, curious question and the serious inquiry.  The casual question is the one you got in the elevator.  A curious person saw your badge and asked for information.  Chances are they don’t have an immediate need to buy or sell. It’s an opportunity to educate everyone within earshot about your program and it may end with one or more requests for your business card.  In these situations it’s best to simply use the standard seller version as illustrated above.

A phone call into your office, an inquiry,  is different.  You can be reasonably sure that the person on the other end of the line has a legitimate need to buy or sell real estate in the near future:  why else would they have called?  Sellers will usually begin the call by asking what you do.  Buyers will usually begin by asking about a property.  It’s the sign, the ad or the flyer that motivates a buyer to make the call, not curiosity about how we’re different.  You must use the opportunity of the buyer inquiry to distinguish yourself as being different (better) than anyone else, to communicate the value you can bring to the buying process, and oh, by the way:  answer the buyer’s questions! 

Notice that with the seller inquiry, we lead with the elevator speech because it opens the caller to wanting more information about us and a willingness to share information about their situation.  It’s almost the opposite with buyer inquiries.  We must begin by answering their questions about the property in such a way that they perceive the value we bring.  That’s what opens them to learning how we’re different and better (the elevator speech). . . and it’s also a topic big enough for a post of its own!

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