Andrew Wetzel's Musings

March 20, 2019

What is the Purpose of a Price Reduction?

Filed under: Ethics,Hiring an agent,Selling — awetzel @ 3:58 PM

Let me start with an analogy.  I am a football fan and I find it fascinating that the game has gotten so complicated that coaches roam the sideline with huge, color-coded charts telling them what to do in various situations.  For example, after scoring a touchdown, should they try a 2-point conversion or just kick the “extra-point”?

Many Real Estate agents have a “mental” chart that they use when a house is NOT selling.  Unfortunately, most of them have a “one-size fits all” answer:  REDUCE THE PRICE!  While circumstances may require a price “adjustment”, lowering the price is not a universal cure:  it may accomplish nothing and it co$ts money.  I wonder how many agents told a Seller that their initial “asking price” was reasonable only to have to admit later that it was too high?

Trying a higher price is not necessarily a problem as long as the seller has the time to wait should doing that delay a sale.  Pricing is an art and not a science so trying to figure out exactly what a “ready, willing and able” buyer will offer makes little sense.  Of course, a selling price has to make sense to buyers and appraisers when evaluated with sales of comparable homes.

To be effective, any price reduction has to accomplish one of two things (doing both is even better).  Otherwise, you may literally be wasting money!

  • Would the proposed lower asking price make your house more attractive to prospective Buyers already looking within your local market and price-range?  If there are 10 houses similar to yours, would a lower price motivate someone to want to see yours earlier in the “shopping stage” or make yours more appealing as compared to your competition?  For example, if your current price is $259,900, what is the next lower-priced house?  A reduction should have a strategy!  You don’t want to just give away your profit.
  • Would the new price “introduce”/ “expose” your house to an entirely new group of prospective Buyers who may not otherwise even know your house is available for purchase?  Buyers tend to look in price ranges so unless you enter a different price range, you may be marketing your house to the same buyers.  That may not be a bad thing depending on your competition,  Using the prior example of a house priced at $259,900, what impact does reducing to $250,000 have as far as attracting new Buyers?  Most Buyers “shop” online for several weeks before contacting an agent and they often identify the house they will try to buy.  This makes pricing even more important.

Obviously an agent and a Seller need to know the local market (the “competition”):  reducing the asking price co$ts REAL dollar$ which may impact a Seller’s plans or their ability and desire to do repairs or offer a seller assist.  That being said, a Seller should be able to discuss strategy and make (or not make) an informed decision BEFORE giving up their hard-earned money.

Simply lowering the asking price, especially if the real issue is poor or ineffective marketing, may not change anything!  If the marketing is ineffective (meaning that agents and buyers are not able to find your property in their search results), few if any may even know you lowered your “asking price”.  Guess what happens next?  An agent may suggest that the reduction was not sufficient and ask for more!  OUCH!

There is no time for inexperience, empty promises or false expectations!

 Remember:  HIRE WISELY!  We are not all the same!

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