I see many posts about listing prices and overpriced houses with pricing driven by sellers. It makes me think of the discussions we have in our office about our potential clients. That discussion centers on Price vs Cost. In some industries, this is a common discussion for sales folks.
Price - The Amount of Money Exchanged at a Single Point in Time.
Cost - The Amount of Money Spent Over a Period of Time.
Let's take a simple topic first that is on everyone's mind. Gasoline. We may know of a gas station that is 20 miles away with gasoline that is a nickel a gallon cheaper.
Yet few people (although some are out there) will spend 45 minutes and 40 miles driving round-trip to save a nickel a gallon. Why not? While the price is cheaper, the cost is not. So we know for small dollar amounts, most people get the concept. And people are not emotionally attached to their gasoline.
Now let's look at houses or property. People talk about the list price of a house or the offered price or even the final, agreed price. Many people are focused on this specific number with total disregard for how much they will spend in the coming days working on (or waiting for) a deal as a buyer or seller.
The important thing to discuss with a buyer or seller of any item or service is the COST!
Let's take a house for example. Mr. House Seller can price his house $20,000 too high for the neighborhood or market or city or whatever. You as a professional know this but some agents will even cooperate with this high pricing (we can discuss why they do this another time).
But what is the cost for this high price? Likely it will be additional months of mortgage payments, additional time to keep the house ready to show, additional maintenance, additional marketing time and effort by Mr. Seller and the agent. Cost to the seller and cost to the agent.
TRY THIS...
When you have someone fixated on a price, you say you will agree to the price if they will agree to the cost.
They'll be puzzled.
You write down the price, then write down all the associated costs in both a best case and worst case scenario. Then take the average (which is more likely) and see if they will sign off that the cost is acceptable. If not, you go back and work on the price and repeat the process.
This process can work with buyers and Sellers. For buyers, get them to list the value of their time shopping, the gas, the costs of their current rent perhaps, the cost of looking at houses that don't meet their "got to have" list (You do have their "got to have" list, right? Without this, you waste time looking at things they'll never buy).
This is not about educating the buyer or seller. It is about helping them see what they are really doing. The list or offer price, that is just a starting point.
The COST is where the MONEY is!
I would drive for the nickel gas....(LOL)
Well, I did say "some are out there"! Guess I found you! :-)
I just went through with this and a seller to no avail. You have it right, the client isn't always right when it comes to RE
Many sellers that overprice want their price and think it will come quickly for not extra cost. Those are the clients that are smarter than everyone else at the listing agents peril.
I've used this in certain scenarios and finally gotten through with a few clients. Thanks for the reminder!
A good concept, but I have had many instances where the seller thinks they know the market better than me, and they insist they know what their home will sell for. I wish them good luck, and in today's market, have seen their list price lowered by tens of thousands, and their homes remaining on the market long after they have moved away.
Sometimes you just can't win, even if what you say makes all the sense in the world.
I have done this and my seller keeps saying: they can just make me an offer. Hopefully, when we go into season I can get a price reduction.
I am going out on a listing this afternoon. Without yet seeing the home, I already know this former FSBO is greatly overpriced for their market area. If a correct price is not agreed to, I do not want the listing. So with that in mind, I will give this cost vs price a whirl. Thanks for the tip, I have used this rule/idea before, but it is timely for today as a reminder of another way to gently convince the sellers to not fixate on price because of their need to sell. (they are in the middle of building a new home).
Good points Glenn. Reminds me of a recent story of a gentleman that wrote a $22,000 check to trade in his Hummer for a Prius. I hope he is going to dive the Prius until the wheels fall off, because at a fuel savings of $104.00 per fill up (26 gallon tank versus 13 gallon tank and 1/2 the fill-ups based on mileage) and assuming he fills up once a week versus once every 2 weeks, then it will take 4 years to recoup the savings just on fuel. My guess is that theoretically, that time frame could be cut in half by carbon emmission savings, maintenance, oil changes, etc. A real dilemma for some folks.
Bo
Paul, yes you nailed something I had not included... this is part of the qualification process and that if they cannot overcome the emotional aspects of the pricing, perhaps it is best they not be a client. After all, we all want partners that all are working toward a shared and agreed vision of success.
Robert, it is indeed at the listing agent's peril. The smart agents know better. The others will get to learn the lesson the hard way.
Kathy, glad to know this has worked and thank you for the post!
Troy, you are very smart in your approach. We don't need every deal, just the ones that will be successful for all!
Edie, that is indeed an approach that sometimes works so I wish you all the best. Reality sometimes takes awhile to overcome emotionally anchored decisions. The sellers may not be happy about the reduction but that is usuallybecause they have to admit their error. That can be a tough pill to swallow after making such grand declarations of knowledge. Thanks!! Glenn
Mary, best of luck and let us know how it went!
Bo, yes indeed, cost vs price is not always looked at with cars either. I guess either the proud new Prius owner either did not do the math or does not care and just needed the emotional fulfillment. Of course, some folks buy new cars every year. Ouch. That is a depreciation hit I don't want each year.
Great fuel for thought Glenn. May I add one more twist to it. Someone taught me when I started out that as a business person I needed to know the cost of doing business. So going on a listing appointment I would always factor out the cost of the listing to my business over time. That way I would know and have the courage to walk away from an unreasonable seller or an unsalable listing. It always gave me a feeling of confidence knowing that I didn't have to take this listing and I could be stronger with my recommendations to the sellers, and in the end they were happier for it.
I won't give up trying to pass this attitude along to my agents, thanks for the help.
I have sellers who need this view right now. Thanks much!
Jim.... this is absolutely critical and I am glad you posted this information. Your point is one all should know an any business. At what point is the deal still good for you and when it is not, then it is not a good deal for anyone. Thanks!! G
Janice, let us know if this helped any! Thanks!! G
Glenn: I learned the hard way and it wasn't fun but the lessons have certainly stuck with me. I appreciate your post and will help new agents not make the same mistakes.
Excellent tool... it always pays to put a number to the problem, then you are able to streamline the answers.
This is so true! I like your cost approach. Thank you/
Donna the lessons learned the hard way are usually the ones we remember. Things look easier until we have to do them, so good for you! You learned by doing! Sure beats being one of the students that never gets out and plays.
Earl, it is interesting how numbers on paper (or a spreadsheet) make comparison easier sometimes. Great point!
I have used this a couple times in given situations and your right, it does work out in the longrun
Dominic, great to know and appreciate your taking time to share!
Glenn, I love this analysis and strategy! Keeping it simple for the clients AND putting the cost down for them in black and white will really help convey their "missing the mark" when it comes to the too high price. Thanks for sharing this advice!
Thanks, I've been dealing with some of these same pricing problems!
Paul, hope this helps. Naturally, you'll modify this to make the process your own. We coach that this is one of many processes to help us become trusted advisors instead of sales people.
Howard, "simple" is a great point for this. Good point to keep in mind on all communication!
Allen, people sure value their property more just because "it's theirs" so best of luck on helping them understand!!
I think that writing down the "costs" while speaking to the clients is a great idea. I will remember this approach with my future buyers and sellers! Maybe this approach will help the negotiating. Especially when there is just a thousand dollars between acceptable prices.
I have taken the approach with my sellers regarding the cost of the house sitting on the market regarding extra mortgage payments, staging, etc. The approach for the buyers that you stated here is very interesting. I will have to use that with my buyers now. Another interesting viewpoint for the potential buyers that have a home to sell. The cost of waiting to buy and for the market to hit rock bottom. What I am making clear is that the longer they wait for the prices to go down, the more their home goes down. Also, if they are downsizing, then it really costs them way more to wait. The percentage that their home is possibly going down is exceeding the percentage on the less expensive home.
That is a great way to help explain the "fee" associated with overpricing the property, so that they understand that there is no free lunch to test the market. Then use the Ben Franklin Balance Sheet close ala Tom Hopkins.
Krista Abshure (Century 21 Becky Medlin Realty) Krista, people so easily forget (or choose to ignore) the costs that are not in their face. They also often struggle with the concept of money over time (and costs over time). These add up and can be very signficant but because they are not a "big check" they need someone to write them all down together!
Glenn, your post has been featured in the Real Estate Professionals Group.
Very true and well put! Some sellers get so wrapped up on the price that they forget how much they will spend to get the price they want (or NOT get it after all).
I like your approach! I will certainly use this in the future. Thanks for the tip!
We've tried this too, sometimes it works and sometimes sellers insist they know better than we do, no matter what.
Why is it that they always want to TRY the higher price first, then get stale on the market and just sit there????? I guess that's Real Estate.
Have A Great Day
Richard Ives (RE/MAX AT HOME) Richard, very cool! Thanks!! Glenn
Meli Gerogianis, e-PRO (Keller Williams Realty) Meli, we see people all the time that forget price vs cost. It does show how people can get fixated on a goal to the point they forget the price of achieving the goal.
Maui Real Estate - Lisa B. Miller R(S) (Keller Williams Realty Maui) Lisa, I hope this is effective. And find ways to adjust the process to make it fit for each situation.
Rita and Brian Burke ~ Kenna & Co. Real Estate You are absolutely right that some folks can be educated and some cannot (or not yet). We use the phrase "they have not suffered enough" when discussing the folks that don't know what they are getting into and the cost of that effort. Hey, nobody said success was mandatory!
DORIS FREEMAN Realtor Hendersonville-Nashville (RELIANT REALTY LLC) Hi Doris! (My wife's name is Doris as was my grandmother, so I am glad to hear from you!) To answer your question of why they always want to try the high price first... I think there are a number of reasons, including the emotional need to anchor a value point and a belief that if they sell at a lower price quick, the must have left money on the table (may not be true but you always wonder) I think the bigger problem is not dropping the price faster after the initial price/value point is established. And, people always think their stuff is worth more than someone elses. Human nature.
On the other hand, if everyone set a price low enough it sold easy and fast, the value of a Realtor would diminish since it would be a project everyone could do easily.