Tag: real estate pricing

Pricing Clinic 4: What Would You Do?

Suddenly, Bob turned his eyes away from Carol and focused again on Broker Al. 

‘Ok,’ he said, ‘You win.  Price it at $300,000.’ 

Al felt all of the hope draining out of him.  He’d been fighting the price battle now for 30 minutes.  He’d thoroughly educated the sellers about the market place and the importance of right pricing.  He’d gotten them over the fear that they were losing too much from the drop in values (see Clinic 1), demonstrated the importance of coming out of the chute with a good price (see Clinic 2) and he’d shown them what happens to the pool of potential buyers when a property is overpriced (see Clinic 3).  He felt his head drop between his shoulders.

Now, it’s your turn to dictate the next action.  Read the alternatives below and chime in on what you believe would be the best course of action.  Cast your vote by leaving  a comment.  In fact, you might even have an entirely different idea — in which case, you can express that in a comment as well. 

Alternative A)  Take a Tour

Suddenly, Al looked up. 

‘Tell you what,’ he began, ‘Let’s take a little field trip.’  Bob and Carol gave him an odd look.  ‘Really,’ he continued, ‘Let’s take a short drive.  I want you to see a couple of the homes potential buyers will be comparing yours to if you price at $300,000.’

After a brief moment of hemming and hawing, Bob and Carol agreed.  As they walked out to the driveway, Al quickly went to work.  Because he spent a little time every week previewing property, he knew he wanted to take them to a new development a couple of miles away with pricing from the low $300,000’s.  But he also wanted them to see the split level on Ellis Ct. that just came on the market.  At $304,900, it had four bedrooms — compared to Bob and Carol’s three — and a partial finished basement.  As they started down the block, he made a quick call to set up the sudden showing. 

35 minutes later, when they pulled back to the curb in front of  Bob and Carol’s house, Al kept the car running.  He wanted them to sit with him for a few moments and look at their house with their new Buyers’ Eyes.

‘Ok,’ said Al, ‘You’re a home buyer.  You just came from seeing the split on Ellis and the models at Evening Star.  I’m your agent and I’ve just brought you to this lovely little ranch with a carport.  What do you think? ‘ 

Alternative B) Present an Example

Suddenly Al looked up.

‘I’m sorry,’ he said, ‘I just can’t do that.’ 

‘Why not?’ said Carol, surprised.

‘It’s not in your best interest,’ he replied.  ‘Let me tell you about the two houses on Elm St. that came on the market earlier this year.  It’s a cookie cutter subdivision, so these two houses were pretty similar — they were about the same size, same age and so on.  I had one of them listed at market value:  $184,900; the other was listed by another company and it was high:  $199,900.  I had an accepted offer at $184,000 within 30 days and it closed six weeks later.  By that time the other house had been reduced twice, first to $194,900 and then to $189,900.  Another month went by and the price was reduced again, this time to $185,900.  Finally, almost five months after the sign went up, the sellers accepted an offer at $179,900.  They played around with price and all it did was cost them time and, in the end, money.  I don’t want to see that happen to you.’

Alternative C) Al Succumbs . . . Sort Of

Suddenly Al looked up.

‘Ok,’ he said, ‘but let’s make it $299,900 so it will still appear in searches up to $300.  And I want to be clear that, while I’m willing to take the listing at that price and I will work on it just as hard as I do all of my listings, I believe we’re about $15,000 too high.  I want us to agree now that we’ll revisit pricing if we don’t have a solid offer in 30 days.  Fair enough?’

Alternative D) Happy Ending?

Suddenly Al looked up. 

‘You know, Bob, Carol . . . I’d rather turn you down than let you down . . . and letting you down is exactly what I’d be doing if I took your listing at that price.  My job is to get your property sold for the highest possible price and net dollars to you, and save you as much money as I can.  I can’t do that if we come out of the chute with an unmarketable price.’  Al began to collect the papers littering the table before him, straightened them and put them back in the clipboard.  Bob’s mouth had fallen open and Carol had a look of panic in her eyes.  Now standing, Al extended his hand to Bob.  ‘Thank you for taking time to meet with me tonight and if it doesn’t work out for you at $300,000, I’d be happy to meet with you again.’ 

Al smiled, turned and started to walk toward the front door . . .

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 . . .

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