These days, knowing the answer will determine your success
By Eugene L. Meyer
“Priced to sell!” In today’s market, what in the world-or at least in the region-does that mean?
RISMEDIA, March 11, 2008-What price is actually right? If you’re a broker who’s been through multiple ups and downs, what do you tell agents who until now have only seen the upside of real estate?
Price aggressively. Sell accordingly. Stage the property. Offer incentives.
Savvy brokers and agents aren’t wringing their hands in this buyer’s market. They are being pro-active, and, they say, making sales, despite daunting inventories.
“I want to work with sellers who want to sell, not with sellers who want to test the market,” says Dan Forsman, Prudential Georgia’s president and CEO. “I don’t have time for that.”
“It’s a challenging, tough market,” adds Steve Rodgers, President and CEO of Prudential California Realty. “But there is money to be made in any market. It’s an exciting time to be in the business, quite frankly.”
Or as Rei Mesa, president and CEO of Prudential Florida WCI Realty, puts it: “For career Realtors, there’s no such thing as a bad market.”
Accepting the Paradigm Shift
In Florida, one of the country’s most overheated markets, prices plunged 29% in 2007 compared to 2006. But for Mesa, with 1,900 agents in 17 counties, this lemon crop hasn’t soured him on the market-or the marketability-of homes priced to sell.
“We’re asking our sales associates to approach it from the standpoint of looking at active listings and not at closed listings as in the past,” says Mesa. “In this paradigm shift of the market we’re in, you look at what’s on the market and work your way down from there. If you’re still looking at inventory sold a few months ago, that pricing is probably not in line with what consumers are looking at now. To market the property today, you have to find the lowest price point to a comparable property and aggressively price below the lowest asking price.”
Priced to sell isn’t a new concept. In January 2006, Mesa said, “We started having discussions about aggressive pricing because we started to see growth in inventory and some real unrealistic pricing. We were ahead of the game in promoting pricing properties correctly and using financing to provide incentives,” such as paying closing costs and buying down the interest rate to make properties more affordable.
“How the property shows” is also important, says Mesa. “We’re asking our sales associates to ask prospective sellers to make sure their homes are up to date with repairs and curb appeal and in some cases even recommending staging the homes so they stand out from others. If the property is staged and all repairs taken care of, or if there are some mortgage incentives, you don’t have to be as aggressive on pricing.”
Debora Nichols, a Phoenix-area agent with Realty Executives, takes an analytical approach. “We look at what has sold and what may not have sold, especially in this market, and we look at what’s active,” she says. “But if nothing is selling, that tells us the whole area is overpriced; everybody is jumping off that cliff together.”
Price Plus Condition
So what is the right price? “In this market, it’s anybody’s guess. If it’s not sold in 30 days, we do another market analysis and another price reduction,” Nichols says. “We take it down a notch, depending on the price point of the home. We have to stay ahead of the curve. If you’ve got ten listings all in the same area and they’re all priced $300,000 to $400,000, and they all fit into same category-three-bedroom home, 1,800-2,000 square feet, and all have a pool-you can’t be higher priced in the category. You have to be in the lower half of that group.”
But it’s not just price-it’s price and condition.
“In this market, buyers are very picky, cherry-picking, and you can’t blame them,” Nichols says. “They want to buy what they can for what they can afford, because once they get into it, they can’t afford to change linoleum to tile, counter to granite, or buy better carpet. They’re putting it all into a down payment. They don’t have money to dress it up, so it’s got to look good from the start.
“It’s as simple as washing windows,” says Nichols. “You’d be surprised how many sellers don’t. It just doesn’t look good. If that’s the condition of the windows, people think, what’s the condition of the overall property? We’ll make them clean it up before we’ll even put in on the market.”
In her area, where prices are down 13 to 14% less compared to a year ago, “we are selling,” Nichols says. “We’re actually very busy, but it’s because we pay attention to details. It’s a double-barreled approach to selling-price and condition. You can’t have one or the other; you have to have both in this market.”
Nichols and the three other agents working with her also aggressively court sellers whose homes aren’t moving. “We see homes sit on the market for months and months and we’ll go do a market analysis and recommend a price reduction as well as doing some things with their home.” Half switch and half stay with their original agent, she says.
“I’m telling agents to work with sellers serious about selling in this marketplace,” says Prudential Georgia’s Forsman.
Agents should reject sellers unwilling to deal with market realities, echoes Prudential California’s Rodgers, whose firm has 92 offices in Southern and Central California.
PruCal, with 4,000 agents compared to 5,000 in 2005, is “dramatically beefing up our training efforts” to deal with the changed market, Rodgers says. Strategies include “webinars,” audio programs, and conference calls to prepare agents before they meet with sellers, many of whom have outdated expectations. “This means some very difficult conversations with the seller,” Rodgers says.
The firm advocates pricing properties within a range 5-7% percent above and below the last comparable sale, rather than setting a fixed price. The idea is to cast a “bigger fishing net,” Rodgers says, to “get a dialogue started between the buyer and seller.”
It works. In San Diego last year, 51% of the firm’s sales resulted from range pricing, which PruCal inaugurated 14 years ago, to some industry criticism. It’s still a tough sell, though, with 12 to 14 months of inventory and homes languishing for 87 days on the market.
If a seller insists on a fixed price, Rodgers said, his agents will sign an agreement lasting days or weeks or with automatic price reductions included. In this market, Rodgers says, sellers may have to offer to buy-down the buyer’s interest rate or pay closing costs. “We show sellers that unless they are creative and flexible in this market, they will have a tough time.”
To reach more buyers, PruCal is also seeking what Rodgers calls the “international buyer,” who may be Canadian or Asian or even, by his definition a New Yorker, who “still looks at our [California] prices as a bargain.” These buyers enjoy a “jet-set lifestyle” and are looking for second and third residences, he explains.
In the Pacific Northwest, says J. Lennox Scott, president and CEO of John L. Scott Real Estate, “We did not have the ‘irrational exuberance’ markets, and therefore we’re not seeing the big drops.” But his agents are still urging sellers to “stage their house, stage their yard, and market price.” He adds, “If you have inventory of seven months or greater in the market, you should be pricing ahead of the market, slightly below the last sale.”
Accordingly, the theme of his last sales associates rally was “Buy Right in Today’s Market,” and the last month’s was “Sell Smart in Today’s Market.” For Scott, it’s all old hat, and almost second nature; this is the fifth cycle “I’ve been involved with in my career,” he says.
Armed With Info
Barbara Reynolds, CEO of Real Living Realty 1 in Cleveland, is not overly concerned about pricing. Prices are down a mere 2% in her market. “We’re not a manic market. We’re a steady market,” she says. “We didn’t have the big swings of the coastal markets. We didn’t have the benefit of a high market. But our sellers are more realistic in this marketplace.”
Still, she still sees this as a buyer’s market in which the key to pricing is, first, providing the seller with solid data on inventory and recent sales in the micro-market “because real estate is local.” Secondly, she says, it’s important to look at what’s on the market-the competition and how it is priced-and the condition of other homes for sale. These factors will “determine how you position yourself in the market, a little below the competition.”
She says her message to sellers is: “I don’t want to sell anyone else’s house. I want to sell yours.” It’s a message she also shares with agents who are seeking advice.
Like Reynolds, Bill Raveis, president and CEO of Connecticut-based William Raveis Real Estate, doesn’t worry much about aggressive pricing because in his New England market, encompassing his home state, Massachusetts and Rhode Island, prices have been relatively stable.
Instead, he worries about perceptions. “We got whacked by the national media, not by the housing market,” he says. “There’s reluctance on the buyer’s side because of the national media, so we post all local housing data on our website. You can see by town exactly what’s happening. We have to educate the public. But we’re shoving against a negative tide.”
With 400 towns in his coverage area, the data can differ markedly from place to place. For example, Greenwich is “off the charts,” with the average sales price exceeding $2 million, but 15 miles away in Bridgeport, it’s $300,000, and two minutes from there, homes in Fairfield sell in the $600,000 to $700,000 range.
Buyers “don’t know what to think at this stage,” Raveis says. To convince them to make a deal, Raveis is spending hundreds of thousands of dollars in advertising. He is aiming “to offset the negative press” with billboards and other media.
His message: “The stories aren’t the same all over the country. We’re not as vulnerable as other sections. There is the ‘Chicken Little the sky is falling stuff’ but not everywhere. Our pricing levels are pretty good.” But where they are not, the smart agent and broker mantra might well be: show well, price to sell.