Andrew Wetzel's Musings

May 27, 2017

What is an Effective Price Reduction?

Filed under: Uncategorized — awetzel @ 3:59 PM

P R I C E  R E D U C T I O N.  Are there any other two words that can elicit such a negative, deep-down reaction from a Seller?  As a REALTOR, a price reduction is a marketing tool, nothing more and nothing less.  I understand that when an agent says “let’s reduce $10,000” that most Sellers won’t just say “great idea”!  However, there are two points I want to stress as I elaborate on my professional opinion.

First and foremost, I would like to be able to assume that an agent and their client discuss pricing at the outset and that, even if both parties disagree about the price, there is some reasoning as well as a follow up plan.  Some Sellers like to “try” a price.  Depending on the market (including the amount of competition), the time of year and the Seller’s “motivation” for selling, that may be a valid thought as long as the Seller does not expect the agent or Broker to “go broke” marketing an over-priced property with limited appeal.  As I mentioned in another post, most of my Seller-clients were already unsuccessful with another agent.  It would be all too easy to recommend a price reduction since most people think that the only answer when a property is not selling.  In my experience, price is NOT always the reason for failure.

A complete market analysis will help me evaluate that but I frequently suggest that we keep the price the same to see if my marketing efforts will succeed.  On occasion I have actually felt that the price was too low and was successful with a price increase!  The “bottom line” is that I want my Seller client to walk away from “closing” with as much money in their pocket as possible (of course, that changes when the Buyer is my client!).  Whether they are buying something else or putting the money under their pillow, like the tax dollars they pay, it is the Seller’s money.  Asking for a price reduction as your first strategy, unless agreed to previously, does not demonstrate “putting your client’s interests first”.  I have seen several properties where the listing agent got the Seller to take reduction after reduction OR reductions that made no marketing sense whatsoever!  The key point is that an effective price reduction either “positions” your property where different Buyers will “find” it OR makes it more competitive with other choices that a Buyer may have.

Second, I understand that Sellers have expectations.  If you price a house at $300,000 dollars, no matter what an agent says, many Sellers become “attached” to that number.  A few years ago I had a Seller who really did not understand the marketing process and was too attached to their property.  The property had originally been listed at $499,900 and the contract “expired” after 164 days with no reduction.  I met the Sellers and told them that their house had issues that severely limited its appeal (very busy street, rancher, cosmetic repairs needed) and suggested an asking price of $450,000 to start with the idea that that might be too high (there were not that many houses available in the $400k -$500k range so the numbers look a little different when compared to a lower price point).  They wanted to list at $459,000 which, while only $9000 higher than my suggestion, placed the house in a different “position”/ “search bracket”.  After a month with little activity I recommended a reduction.  They declined to even discuss it.  After the second month I was able to meet with the wife and strongly encouraged a reduction.  She was firm in declining and said that they “had already given up $40,000”.  I asked what she meant (I knew but I wanted to hear her explanation) and she said that she felt that her house was worth the original asking price of $499,000.  My listing contract “expired” and they have used several agents since then and continue to own the house.

Pricing is one of the “4 P’s” of marketing Real Estate and it is the one aspect that Sellers have the most control over.  The current market has changed some of the “old thinking” so pricing is more critical than before.  It requires a definite strategy and a plan.

HIRE WISELY

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