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Developing Your Pricing Philosophy 7/3/2008
Ask a dozen agents to explain their home pricing philosophy, and you'll hear a dozen different approaches. And if the talk reveals frank responses, you'll also learn that the most common pricing strategy is no strategy at all.
Here's my advice: Break out of the ranks by establishing and following a specific strategy for arriving at the ideal selling price for each home.
Adopt the philosophy that, in real estate sales, price is king. Price trumps all other factors - including marketing approaches, home condition, market competitiveness, and sales approach. I believe that, in the end, marketing and condition of the property are controlled by the price.
The alternative, advocated by many agents, most sellers, and even some sales trainers, is to emphasize marketing over pricing. Rather than working to set the ideal price, they believe success will come from optimizing the home's condition and presentation and then marketing it with skill and savvy.
I take the opposite belief, based on years of experience working with sellers who wanted unrealistic prices for their homes and who experienced first-time sales failures as a result.
Over my sales career, I resurrected and re-listed more than 600 expired listings - nearly 75 a year. Among all those transactions, I never met an owner with an expired listing who thought that an unreasonable price had anything to do with the home's failure to sell. They all blamed the previous agent and that person's approach to marketing. Each sought some magic marketing strategy to change the reality of the law of supply and demand. There is a magic strategy: Price the home correctly.
Price is the only factor that can overcome sales obstacles, compensate for a home's deficiencies, and motivate a purchaser even if the condition of the property and your marketing approach is less than perfect.
Getting the listing at any cost... Does this scenario sound familiar? An agent (usually a newer agent) is short on business or maybe even desperate for the chance to stake a sign in someone's yard. The agent wants a listing at any price - even if the chance to seal a deal erodes the likelihood of selling the property. To gain a seller's nod of approval, the agent makes a flatteringly high pricing recommendation, throwing out a number the client wants to hear and then hoping something good will result from the bad situation.
I can think of few examples, if any, where this philosophy works. Hope isn't a successful pricing strategy. Worse, the please-the-client mindset is a hard one to abandon. Agents who achieve listings with unrealistic prices find it hard to later counsel their clients honestly.
The pitfalls of a "please the buyer" approach are many and significant. By overpricing, you can practically count on a reduction in your productivity, profitability, and salability, and here's why:
It's impossible to keep your productivity high when your time is spent in conversations with an unsuccessful seller who lacks motivation to take corrective action. The seller's negativity, concerns, and phone calls will only increase with each week or month the house remains on the market. As time goes on, you'll devote more and more time unsuccessfully trying to create a sale not only for your seller but also for yourself. This will pull you away from activities that are more likely to deliver income. The ensuing frustration will de-motivate you and stunt your ability to secure better appointments that create other income opportunities.
An unsold, overpriced listing negatively impacts your profitability because it costs you time and money to service while it delivers no revenue to your business. And the situation only gets worse the longer the listing languishes on the market. You'll end up deducting the expenses of this in-limbo listing from the proceeds generated by any revenue-producing deals you manage to close in the meantime, reducing your net profit and business success.
Unsold homes that linger on the market seriously diminish your salability, which is the term that describes your sales success track. Your salability is based on such key statistics as your average ratio of listing price compared to sale price and the average number of days your listings are on the market. Obviously, these statistics, which prospects rely on when choosing one agent over another, can be crushed by a "get the listings at any cost" philosophy. They're also harmed by the "start high and reduce later" tactic.
If you take and price a good listing competitively, it will sell. You can't keep a good price a secret!