Welcome to the first of a twelve part series. The 12 Things we will be covering in this series are the following:

1. Focus on Seller Pricing Strategies
2. Master Staging
3. Learn and Use Creative Financing
4. Bulletproof the Transaction
5. Master Lead Capture and Conversion
6. Be More Proactive with Internet Leads
7. Get Lean and Mean with your Expenses
8. Increase Your People Effectiveness
9. Get Clear About Your Role
10. Create Buyer Urgency
11. Become an Expert in Short Sales (maybe)
12. Lead Generate, Lead Generate, Lead Generate…AND…MOFIR
 

The Truth

I often hear agents, talking about homes that they have listed and say, “Wow, I don’t understand.  The home is priced right but I just can’t get it sold.  It has been on the market for about 4 months now and I haven’t had a showing in over 3 weeks!”

The truth is that if the home was priced right, it would be sold!  In this type of market, we tend to get confused about what priced right means.  If a seller is wanting to sell their home, they must price it to sell…right? 

So, let’s talk about what priced right is.  If a buyer is willing to pay $145,000 for a specific home in today’s market, would priced right be a list price of $150,000?  The simple answer is, “No.”  Here is why…

The Law of Supply and Demand

Ever hear of the Law of Gravity?  Why is it a law?  It is a law because if you were to hold out a ball in front of you and let it go, it is going to drop.  The Law of Gravity says that it must.  It’s worth noting that it is not the Suggestion of Gravity…just as it is not the Suggestion of Supply and Demand. 

Simply stated, the Law of Supply and Demand tells us that when supply is low and we have high demand, prices go up.  Conversely, when we have high supply and low demand, prices go down.

Think about traveling during Spring Break or Memorial Day.  We can accurately anticipate that fuel prices are going to rise just before the heavy traveling begins and that the prices are going to drop just after the heavy traveling is finished.  We also see this happen around the Christmas holiday. 

Regardless of your faith, Christmas is the one holiday that seems to best illustrate the Law of Supply and Demand.  Just before Christmas, we see some of the highest possible prices for consumer goods due to the number of people buying gifts for all of their friends and families.  As soon as Christmas is over, we see most all prices drop.  By the first week of the new year, retailers have realized how over optimistic they were and quickly put the excess inventory on sale to get it sold.

Pricing It Right

The Law of Supply and Demand works the same way in real estate.  Currently, the Indianapolis market has less demand and significantly more inventory.  In addition, one in five (20%) of sales within the MIBOR area are REOs!  Just like the retailers, now is time to put the homes on sale!  For sellers to get their home sold fast, they need to price it right–the first time. 

It’s important to help your sellers stay ahead of the market by pricing the home just below the market, not just above it.  Otherwise, they will be chasing the market and realize bigger losses to get their home sold later. 

You only get one time to enter the market for the first time and the first impression is a lasting one.  If you over price a new listing, buyers who look at the home are going to remember it as a overpriced.  It is highly unlikely that they will ever view the home again, even after you have exhausted your price adjustments.

You have some great tools to help educate your sellers on pricing the home right.  A few ways you can help your sellers understand the importance of price includes a comparative market analysis, absorption rate analysis, and to show an illustration of the Law of Supply and Demand works in real estate.  John Lutz, a 40 year real estate veteran with 25 years as an appraiser, recommends giving more strength to the Active listings.  He says that the market has shifted and prices are dropping.  Therefore, your solds from just 6 months ago may not be relevant.  John says, “You need to know what your competition is doing more today than ever before.  If the home down the street is priced lower than yours, you are just helping them sell their house, not yours.” 

Getting It Right

If for some reason you and the seller missed the mark on pricing it the first time, you have an opportunity to get it right by adjusting the price.  You can and should utilize all of the same tools you used to get the price right when listing it.  For most of us, we are people please-rs and tend to shy away from price adjustment conversations.  Just remember, you have a fiduciary responsibility in helping your clients getting the home priced to sell. 

Cindy Marchant, a $16.5 Million producer, uses the listing agreement to get scheduled price adjustments.  Cindy recommends getting a 2% price reduction after every 11 showings or 21 days, whichever comes first and until it is sold.  Lisa Parrett also schedules price reductions in the listing agreement.  Lisa typically sets a dollar amount (usually $5,000-10,000) for the home to be reduced on specific days.  Both systems are fantastic!  Cindy and Lisa both also said that they rarely get objections to these price adjustment strategies. 

You can choose to schedule your adjustments upfront with the seller or “wing it” later.  Most top producing real estate agents agree, the expectation needs to be set at the listing appointment.  Even if you choose not to put the reduction in writing at the time of listing, you should at least prepare the seller as to when you will be calling to get that reduction. 

In The End

Our buyers and sellers hire us to help them make great decisions.  Our sellers trust our knowledge, experience, and tools enough to allow us to market their most valuable asset.  We need to acknowledge and respect that trust by being the professional they expect us to be.  We really don’t have the luxury of being professional only when it is convenient.  If it is time for you to deliver tough news to your clients, you need to do it.  The longer you wait, the worse it gets.  When it comes to pricing a listing in a buyer’s market, if you do not get the reduction today, you will likely need to double the amount of the reduction later.  That would not be considered looking out for your client’s best interest.

If you are looking to become better at your pricing strategies and your pricing scripts(hopefully, that is all of us!), please join us next week to see Linda McKissack, a Millionaire Real Estate Agent, in Cincinnati, OH.  Wouldn’t your sellers expect it? Click here for details.