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The Price Is Right is a familiar game show where contestants view a consumer product and then try to guess the actual retail price. The winner of this guessing game is the one who comes closest to the actual retail price.
If only assessing the value of your newest listing were that easy. Professional real estate agents struggle with the art of finding that right price and selling the home quickly or risk losing the buyer because you simply overvalued.
On a personal note, I am no stranger to overbidding and losing the grand prize.
I’m reminded of the time when I was in junior high school and the Sadie Hawkins dance (an event where the girls ask the guys to the dance) was announced.
Four weeks prior to the dance, not short on self-esteem or inflated-ego, with every invite, I kept saying no because I was hoping or thinking I could do better.
Well, the dance came and went and due to my emotional guessing, I ended up on my couch watching the Fonz on TV. All because I overvalued myself, I never attended the dance and I most likely missed out on a very memorable experience.
So how does that story relate to real estate?
Well, pricing a property, especially one that is luxury or custom, is extremely sensitive, challenging and critical. If your list price is not rooted in accurate comps that are based on current market conditions, as well as a proper assessment of demand for the product, you and your client might still be looking for that elusive buyer six months later. And you may be left chasing a market that is stagnant at best and declining at worst.
The question then becomes: How do you set a proper list price that will both satisfy your seller and attract qualified buyers? You find that magic number in the six steps to pricing a new listing:
1. Push the envelope, but have a plan ‘B’ in place
When it comes to listing a house, you must be aware of the fine line between “priced to sell” and “priced to keep.”
To find that fine line you must understand that our properties are not an income property where you take the income minus the expenses, divided by the sales price (or list price) and then come out with a CAP rate that should make it move.
Instead, we are dealing with a more subjective sale where many factors are rooted in many subjective parts and opinions. Therefore, when it comes to pushing the envelope, I subscribe to the theory that it’s OK to price a property 10 percent above market just to see if the property could produce a buyer willing to pay more than the market bears.
That said, you can push the envelope only if two factors are in place:
- You need to obtain at least six months to a one-year listing, where you can take the first two months of the listing period to see if a potential buyer exits.
- You must have an agreement upfront with the seller that if no offers come in within the first 60 days (and you do your job of marketing) the list price gets modified closer to your original list price suggestion and the current market condition.
Reality check: Don’t price your property to “keep” it, otherwise you will be like the Maytag repair man, sitting at the office waiting for the phone to ring — and no one will be calling.
2. Think ‘multiple’
Every listing agent’s goal is to wake-up in the morning and find multiple offers in their inbox. They might all very well be below the list price, but with every offer, you are now able to send out multiple counteroffers that will certainly assist in bringing out every buyer’s bottom line.
The “think multiple” technique works because eventually the market itself will tell the seller (and you) what the “market value” is, by the offers you receive.
So how do we get these multiple offers? The answer is by pricing it just a little under market to get buyers’ attention and give them a reason to make the offer right from the start when the listing is new and hot.
We all want to connect the dots from “offer” to “acceptance” to “close,” but first we must have an offer to start connecting dots to.
Reality check: Creating a demand upfront will ensure the best possible outcome in the end.
3. Don’t use ‘fake’ or false data
Someone once said that there are three types of lies: lies, damned lies and statistics.
Many agents pull or rely on comps or data from sales that have no relevance. Though some information might seem accurate on the surface, an app or a website like Zillow or Trulia that pulls an approximate value for a listing in a tract that is made up of cookie-cutter homes with very little differences is no gauge for the truth.
Luxury or custom homes with the same square footage and lot could have a 20 percent variance in value due to finishes, view orientation and outdoor lifestyle. These nuances are mostly only known to local agents who are entrenched in the market and who have the ability to accurately assess the market.
Reality check: Don’t be robotic in your assessment of value. Your client didn’t hire a robot or app.
4. Avoid monkey see, monkey do
When it comes to finding the best price listing for you client, don’t fall into the “monkey see, monkey do” syndrome. It’s very important that you price your listing based on what you believe is the best price, not what other active properties are listing.
Just because another agent has a similar listing with very similar characteristics at $5 million and it has been on the market for six months, doesn’t mean you price your listing at the same price or more (especially when your instincts and expertise tell you it’s worth only $4 million).
Many neighbors try to one-up each other when multiple homes are on the market, believing their home is worth more.
Reality check: Don’t rely on an app or site or your seller to determine the eventual list price. Extrapolate from all data and information available to you — including your gut instinct — to come up with a list price that will help you reach your seller’s goal (hopefully within your listing period).
5. Be proactive not reactive
Our market is in a constant flux. Interest rates rise, demand falls. Demand falls, prices become stagnant. When stagnation hits, creative and innovate marketing, as well as proactiveness, must happen before the other properties in the area make the same adjustments.
With limited demand, market time substantially increases, and unless you are being proactive, your listing might not sell during your listing period, leaving the second or third listing agent in line to save the day.
Reality check: Don’t be the kid who plays musical chairs and has no chair to sit in when the music stops. Be the property that all other listings adjust to.
6. Be prepared to walk away from a listing
As I mentioned earlier, I have no problem with taking a listing that is 10 percent above my assessment of the market. However, there will be times when you and the seller will be too far apart in agreeing on a list price to anticipate a positive outcome, and your best course of action will be to simply walk away.
In the end, there will be two disappointed and frustrated people. You, for spending all your time and resources on a listing that did not sell, and the seller, for wasting valuable market time with zero results.
Trust me: They will blame you for a missed opportunity and not performing as promised, just like you will blame the seller for not allowing you to make the necessary adjustments to get it sold.
One of my favorite sayings is, “Be the first born, the second spouse and the third listing agent.” When sellers are on their third listing agent, they most likely have endured two listing periods where they listed the property too high for it to have any chance of selling.
Reality check: Know when the best option might be to walk away.
The strategy for proper price listing is by no means a case of “build it, and they will come.” Or in our case, “list it, and they will buy.”
We, as professionals, cannot just throw out any list price that the seller might suggest due to their online, late night research or their input from other competitors trying to get the listing.
As professionals, we have to be accurate, truthful and insightful in determining a list price that will give everyone the best chance for a desirable outcome.