Here’s a nugget of pricing advice from @properties co-founder Thad Wong, via Bob Darrow’s Your Windy City Guide blog:
The worry price is the price at which a home is offered where a potential buyer will say, “I am worried that someone else may buy this!”
This is very real, and where your listings need to be priced if the goal is to sell them. Buyers today are setting the pricing for which homes will sell. They will also pass on a home because, in most of our neighborhoods, there are more than a few homes available in that same price range with similar amenities. Your listing needs to be the best priced home within the category it is competing against, or, if the home has a defect similar to backing up to the El or expressway, it needs to be priced where the competing homes are smaller and in much worse condition giving the buyer a valid reason to buy a home with a defect in today’s market.
It doesn’t strike me as novel advice to say that if you are the best price it will sell. It’s kind of like saying the sky is blue. I take the approach of evaluating each clients goals. Maybe a quick sale is important. Maybe protecting value is important even if it may take longer. Maybe someone doesn’t have to sell but wants to test the market at a certain price.I assume the client already realizes they can undercut all listings in their category if they want to. Our job is to help them execute their goals, not our goals.
Thad Wong’s success is an indication that he’s more sophisticated in his approach than this single quote implies.
What’s interesting to me in the quote is that it cuts sharply against the argument many brokers make to justify the price of their services, i.e. their superior marketing, analysis, staging, salesmanship, reaching a larger pool of buyers, etc. etc.
Wong’s quote leaves the impression that aggressive pricing is all that matters in today’s market. That is clearly what matters to a broker who’s looking for a quick buck but may not, as Matt Garrison notes, accord with the client’s objectives.
When I was a seller I priced aggressively because I was more interested in a certain sale rather than an uncertain higher profit. I frequently found myself educating brokers about how aggressive my pricing was. They typically lacked enough familiarity with the actual comps to recognize a good price.
Sellers need to pick their broker carefully and value aggressive marketing and in-depth, hyper-local market knowledge and experience over broad-brush market advice. Lowball pricing may send the wrong signal about the property to the market and doom a sale that might have happened quickly at a higher price.
We are trying to maximize a client’s return in most cases while still actually inducing offers and selling a property. Matt’s right… you can figure out what low is and probably sell.
This is probably most true in new construction and in high rise buildings.
In most cases, we are working on a small margin for the seller. In those cases, we also need the seller to spend some resources in making the property look it’s best. Buyer expectations are high. In many cases, a seller does not realize, or, is hard to convince that many steps need to be taken to assure best condition and best pricing. Usually we are faced with limited resources and little flexibilty in selling price before the client is losing money. In probably half of my listings, the client is selling for close to or less than they bought the property at. So, getting them to improve the property JUST to actually sell it for less than they paid is tough… but reality.
Sure, you can price low for your “category”, but in many cases out side of high rise units in the same tier, with the same view etc… the uniqueness of property and value is tough to gauge. $5-$10K in price can really help some people out if it is possible to get, so going too low for a buyer to refuse is not always an option.
I agree that he probably has a more nuanced approach than the quote implies. Maybe he will do an interview on this site to share it with us. My point is that I view our role differently than the quote implies. Our job is to help clients navigate a complex and difficult market according to their unique goals.
As resale agents we are not simply market makers. An individual family’s primary investment is on the line and our job is to help protect it whether they are buying or selling.
With regard to high volume development sales, that is all I did until early last year, when I decided to work with individual clients instead. When you have 100s of units price is everything, and I always thought it was best to leave a bit on the table and move the units (we sold 761 in 2006).
But I believe individual transcactions can beat the market, unlike large developments. And we try to do just that for our clients, with a unique strategy for every unique situation.
I frequently find myself in the situation where I’m pointing out to a selling Realtor things that significantly affect the value of a home – and of which the Realtor is completely unaware.
Neighborhood schools are perhaps the clearest example. The great majority of Realtors I encounter are completely clueless about public schools and their often substantial impact on property values. That occurs on both the buy side and the sell side, since city buyers and sellers are often childless and unaware and most Realtors don’t understand neighborhood school boundaries or their import. As a result they’ll price nearly identical homes similarly despite the fact that one is around the corner from a top-tier public school and another is 8 blocks from a marginal one. The characteristics of the homes are similar, they may be 3 blocks away from eacch other, and that makes them “comps” to all too many Realtors.
Many of the Realtors who entered the market in the early part of the last decade and became successful are quite good appliance and flooring salespeople but understand little about real estate values. They didn’t have to. In a market like this they need to learn the fundamentals.
I always recommend that buyers and sellers look for someone with substantial experience in and knowledge of their area. There are many subtleties in pricing and knowing them pays off.