Realistic Pricing in a Declining Market
by Walter Sanford
Is Your Home Still on The Market? READ!
Convincing sellers to price their homes correctly during a downturn isn't easy.
The real estate market's strong performance in recent years has pumped up sellers' expectations of how much their houses are worth, but marketing a home at yesterday's prices can cost you today's sales. A slowing national economy and anxiety in the wake terrorist attacks have heightened concerns that the real estate market has peaked.
If your local market is stagnant or dipping, you might need to convince sellers to set a lower asking price for their property or even to price it slightly below comparable properties to anticipate a drop. I can hear the screams now, but you have a responsibility to yourself as well as your customer to price the property to sell.
Here's what I did at the different stages of the pre-listing and listing presentations to help convince overly optimistic sellers to set a realistic price.
During the initial call or email, determine the sellers' eagerness to sell. If a seller isn't motivated and wants an over-market price, you may be better off going no further with the presentation. Instead, start practicing your "renunciation" speech.
The pre-listing package offers you a chance to educate the sellers on pricing principles and current market trends. Here, I explain the advantages to the sellers of setting a lower, more competitive price:
More buyers will be introduced to your home. Competitive prices attract the best buyers and create a better "buy now without a lot of negotiation" environment.
More salespeople in your community will put forth an effort to sell a well-priced home.
Faster closings mean a savings of carrying costs. Furthermore, moving on with your life has a value.
In addition to stressing the benefits of setting a lower price, the pre-listing stage also affords you the opportunity to correct sellers' misconceptions on pricing. Some sellers might be tempted to choose another salesperson who quotes them a higher asking price. This begs the question, "Does the salesperson want your success or a listing?" A salesperson who gives an unrealistically high price is making an empty promise.
Other sellers believe that overpricing will work to their advantage, giving them "bargaining room." I tell sellers that although overpricing in a rising market may be appropriate, we have never had a successful client overprice in a falling market. Leaving bargaining room isn't as valuable a negotiating tool as bringing in a greater number of more highly motivated buyers through setting a competitive price.
It's also important that sellers realize that a property usually gets the most attention from buyers just after it's put on the market. I encourage sellers to take full advantage of this phenomenon by having their home show the best and be priced the best during the first four weeks of the marketing efforts. I can share many instances when the best offer we received was the first offer in the door.
During the listing presentation, you should be ready to discuss, in person, the points on pricing you included in your pre-listing package, as well as the negative impact that overpricing can have on a property's marketability. Serious buyers will never see many overpriced properties, since these buyers usually look only in the price range that has been pre-determined by their ability to obtain financing. To demonstrate this principle, I recommend showing the search feature of your MLS software and how easy it is to be left off a list of proposed properties for a showing tour if your pricing is too high.
If sellers are still doubtful, show them how shopworn properties, which have sat on the market for a long time, end up selling for less than market value. This drop usually occurs because buyers heighten their scrutiny of both the price and the property's condition when the property has not sold promptly; they assume that property is overpriced or has a problem.
Sometimes it takes an outside opinion to convince a seller to be realistic. Keep articles about negative market conditions on hand. Another option, if you can't convince the sellers to set a realistic price, is to enlist your broker or sales manager as a third-party mediator. You can even hold off setting an exact listing price until you've conducted a tour for your salespeople or had the property appraised. The opinion of your peers may help convince the sellers to set a lower price. You can even hire an appraiser yourself and tell the sellers you will pay the fee if the appraisal is closer to their price estimate than to yours. This is a beginner's method of having a seller face reality.
Keep in mind, however, that not arriving at a final list price should keep the prospect from signing the listing agreement. Get a commitment to a price range subject to agreement with the third-party mediator.
Finally, remember that despite your best efforts, some sellers will resist setting a realistic selling price for their homes. Don't be so attached to getting a listing that you cannot walk away. Marketing a listing can cost hundreds and maybe thousands of dollars, and an unsuccessful attempt to sell an overpriced property can cost you future business. You owe it to your sellers and your business to take a listing that will sell during its contract. All clients are right; I just don't want to transact business with some of them. Working with sellers to set a realistic price for the current market is the best way to ensure that that will happen.