Persuading sellers to price their properties realistically is always a challenge. This can be especially difficult when your market is still experiencing price declines. The question is how to unhook your sellers’ price anchors and then persuade them to list their property at a price where it will sell.
In psychology professor Daniel Ariely’s book, "Predictably Irrational," he discusses how people become firmly attached, or anchored, to ideas. According to Ariely’s research, these anchors are extremely strong when it comes to the price of someone’s home.
For example, when a homeowner sells his home for $500,000 in Los Angeles and moves to Dallas where the same home would cost $250,000, in almost every case, the homeowner will purchase a new home that is at least $500,000.
Breaking a seller’s price anchors can be challenging. Here are three proven strategies that really work.
1. Rate of absorption
A tried and true approach for addressing this situation is to use the rate of absorption (i.e., how much inventory is on the market and how quickly it is selling).
To illustrate this point, assume that there are eight months of inventory on the market. In other words, only 12.5 percent of homes on the market will sell in any given month. The other 87.5 percent will not. Sellers who want to place their properties under contract must position their property in the marketplace where they will be in the best 12.5 percent in terms of value, which is a combination of condition and price. If not, their listing will sit on the market until it expires or until they lower their price sufficiently to motivate a buyer to purchase it.
The way to close the buyers on using this approach is to say:
"Mr. and Mrs. Seller, you have an important decision to make. Will you position your property where it will be in the top 12.5 percent that will sell next month or will you position your property where it will be in the 87.5 percent that will still be listed next month? It’s your choice, what would you like to do?"
2. Use the price-per-square-foot data
A different alternative is to use the price-per-square-foot data. As a general rule of thumb, properties fall into three price-per-square-foot categories based upon their condition and location.
a. Top price per square foot
The first category is the property is either new and/or in excellent condition and in a top-notch location.
b. Midrange of the price-per-square-foot numbers
The second category is for properties that have "amenities similar to many of the homes found in this area." This is a nice way of saying that the home is in an average location and in average condition.
c. Bottom price per square foot
The third category is there is either something wrong with the location, the condition, or both.
Now you may be curious as to how you get the sellers to accept their house is average or even less than average. There are several ways to approach this issue.
First, you can take the sellers out to look at the competition. Next, ask them which house is most like yours? If you don’t want to take them out to see the competition, another way is to gather as many interior photos of closed sales as possible. Let them choose which houses most resemble their house. You can then use the price-per-square-foot sales numbers to generate an accurate list price.
The beauty of using the closed-sale statistics (i.e., showing the sellers pictures of properties that have closed) is that it shifts the discussion from list prices to sold prices. This makes it easier for the sellers to choose a more realistic price.
3. The pricing line
The late Lee Coats, who wrote much of the training for Coldwell Banker back in the 1990s, invented what he called a "pricing line." If you haven’t worked with this approach, it’s extremely effective. The system is fairly simple. Imagine a page with three different charts that resemble rulers marked in 1/4-inch segments. The top chart has the "recently sold" properties. The agent records each property that has sold on this pricing line using the price-per-square-foot data. The agent then repeats the process by recording the properties currently for sale on the second line and the properties that did not sell on the third line.
The sellers can quickly see the range of the most recent sales, what the current competition is, as well as how much higher priced the expired listings were on a price-per-square-foot basis as compared to those listings that sold.
When you show the seller the listings that are currently available, the closing question is, "Which line would you choose?" When properties have comparable amenities, it’s easy to demonstrate that the lower-priced listings usually sell more quickly.
The next time you’re facing a seller who wants to overprice his listing, try one of these three approaches. There’s a good chance you’ll walk away with a property that is priced to sell.