The practical file
Best pricing strategy these days: smoke and mirrors or a good product?
What's the best way to sell a home in a soft market? What's the best way to sell a home when homes don't sell themselves?
Before I answer, let me correct one slight misapprehension: I've never had a listing sell itself, even in an absolutely splendiferous market. Despite what most people think—despite what even a National Association of Realtors® magazine article, written by a journalist, not an agent, said not too long ago—homes didn't sell themselves during the boom. And in a soft market, homes sell themselves even less.
Now I'd like to pass on a few hot tips I've heard lately on how to sell in a soft market:
Plan A: Price the home well above market value and give Buyer the satisfaction of grinding Seller down to what Seller would've taken in the first place. The advantage Plan A offers Seller is that it ensures he gets the price he wants by instructing Buyer, through the ridiculously high list price, that Seller is no sitting duck. No, Seller is hard-nosed and savvy and Knows How To Play The Game and is, in short, one heck of a negotiator who won't fold at the knees just because there's been some chatter about a soft market. Buyer, for her part, gets to think she's one hard-nosed and savvy negotiator who Knows How etc.
Yeah but...what if the Seller's price is so ridiculously high that Buyer won't bite? Okay, okay, there's...
Plan B: Price the home slightly above market value. Now we're cookin' with gas. Buyer still gets the satisfaction of grinding on Seller, and Seller still gets his price because he's still instructing Buyer as to what the correct sales price should be. Only less so.
Yeah but...Plan B makes Seller run a greater risk if Buyer is feeling hard-nosed and savvy, because list is now only slightly above what Seller deems to be the correct market value of his home. Okay, okay, there's...
Plan C: Seller still prices his home high but offers Buyer a credit for closing costs. Plan C's benefit to Seller is that he doesn't undercut the competition, thereby keeping his comps high and propping up the floor of everyone's home price including his own. Because we all know that as soon as one seller reduces his list price, all the other homes look overpriced and all the other sellers have to reduce their list prices too. Sellers have an obligation, to themselves and to each other, to keep their prices high—even if this means no one's home sells—so that buyers are fooled into thinking those too-high prices are really market prices.
Yeah but...why would Seller, with a pressing need to sell, care what happens to his competition and to sellers who might be putting their homes on the market in some distant future when all they can see of Seller is the taillights on his moving van? What's in it for Seller? A statue in a park? Does anyone who's worked with buyers really think they're dumb enough to fall for this? Does anyone who's worked in the real estate marketplace really think it can be rigged? Does anyone really think homes will start selling for full price if sellers just circle their wagons and "maintain" last year's prices against the assault of whooping buyers? Okay, okay, there's...
Plan D, locked in that cabinet over there labeled break glass only in case of emergency and only in case Plans A, B and C fail: price the home below market. Although extremely risky, the advantage of Plan D to Seller is that it may whip up a multiple offer frenzy that pushes the sales price up to Seller's desired price.
Yeah but...what if buyers don't know that Seller's home is priced below market? What if they mistake Seller's beguilingly low list price for Seller's absurdly high list price and nudge-nudge-wink-wink guidance to buyers? What if buyers, in their uninstructed ignorance of market value, make offers below even Seller's beguilingly low list price? Okay, okay, there's...
Awright, awright, break it up, break it up! Move along!
"What's the charge, officer? We're just real estate professionals, brainstorming on how to sell homes in a soft market."
The charge? Thinking too much.
Hey guys, how about this for a pricing strategy?
Plan A: Hard work and a modicum of smarts.
Let me be a little more specific:
1. Know your market. No, I don't mean you have to be the leading, up-to-the-minute authority on your listing's neighborhood, selling more homes there, year after year, than any other agent. It does mean that the minute you even think you might get the listing, you go out and look at the competition. Don't just gaze at the MLS and think, "oh...maybe I should see that house...some day...as soon as I put my kids through college". Go out and look at that house, tomorrow if not today, and look at every other house that might be a comp. Bracket your listing: look at every house that might be slightly better and every house that might be not quite as good. Check them out on broker's tour, so you can talk to other agents and so you can see which homes are mobbed by agents and which aren't. And don't just blow through a comp with your eyes on the floor talking deal on your cell phone. Look at it the way buyers do, comparing it to the home you might be listing. And while you're at it, get a feel for that market. Does it favor buyers or sellers? Are local agents upbeat or are they looking for part-time work?
2. If your due diligence indicates your listing will be competing in a soft market, look at it even more critically, as would any buyer. How does your listing compare to the competition? What would it take to get your listing in the top 10 percent of all homes in that neighborhood or price range? What would it take, in other words, for your listing to sell? And then...
3. Tell your seller. Have frequent and earnest—and frequently earnest—conversations with your seller. Your job is not to be his buddy and sycophant. That's his dog's job. Your job is to advise him on maximizing the appeal—and thus the sales price—of his home. Maximized appeal comes from a) nailing the price, and b) presenting the home to its best advantage, and c) using marketing that isn't done in crayon.
Those frequently earnest conversations may go something like this:
Seller: "This house is just a few blocks away and about the same size as mine and it sold for way more than you're telling me mine will sell for."
You: "That house is in a more expensive neighborhood."
Seller: "This house is right next door and it sold for way more than you're telling me mine will sell for."
You: "That house is 40 percent bigger and sold in a better market."
Seller: "My friend/neighbor/brother/co-worker told me I don't need to do what you're telling me to do."
You: "How many clients' homes has your friend/neighbor/brother/co-worker sold lately?"
Repeat daily, as needed.
So what's wrong with Plans A through D? Nothing, as long as they're used at the right time, in the right market, in the right neighborhood. I will say that, in this area, Plan A has a snowball's chance, while Plans C and D will sell a house. Plan C's credit for closing costs is just about essential for selling a low-end home to a cash-strapped but otherwise qualified buyer, while Plan D continues to work well in any other price range I'm aware of, in any market. The objection to Plan D—"How will buyers know what to offer?"—takes us back to the inexplicable world of primitive man and the irrational, out-of-focus marketplace of the real estate academic, the bubble blogs and, often, even our brightest clients, and it's a little disconcerting to see real estate professionals going there as well. Aren't we supposed to know how our marketplace works?
This isn't rocket science, nor is it a day at the beach, although it can be satisfying if you like educating your clients, defending your views and seeing the results. It is hard work, but it's only what every agent should do, with every listing, every day, in every market.
So don't just rely on Plans A through D. Instead, bring your A game.