Avoiding Overpriced Listings
We’re going to have a couple of weeks on a topic we all hate to hear about … sellers hate it more than you do, but it’s necessary: the concept of price reductions, and getting your inventory listing sold.
The Three Market Phases
We’re always going to be involved in one of three phases of a market. Either the market is climbing, flat or declining … those are the only three options we have. Today, nationwide, we’re involved in a declining market. Depending on where you are, it can be a little bit … 5 to 8 percent. Up to some parts of the country … 20, 22 percent less transactions this year versus last year. We saw in most parts of the country starting around June, July last year a decline in the number of listings sold and buyer controlled sales, while we saw the inventory rising at the same time.
A professional, good, strong real estate salesperson—you. You have to be cognizant of this type of information to do your job if you’re going to work with sellers, and you have to be cognizant if you’re working with buyers, why? Because buyers are making offers on listings that are often overpriced, or (if you know that it’s fair market value) selling them on the value of that house.
A Triple Threat
We’re facing three factors today.
Inventory is rising. In Las Vegas, where we’re headquartered, there were 5200 new listings taken last month … a lot of listings in our relatively small market. It was probably one of the most active listing months we’ve had for quite a long period of time.
Whenever you have an increase in inventory of any type—I don’t care if you’re selling pens or selling paper—you have the second factor, which is a softening of prices. In our language, softening of prices means that listings we’re taking at a high price should have been set at a lower price, and will probably sell at an even lower price.
The third thing we’re seeing is a decline in the actual number of transactions. Many of our customers are reporting a 20, 22 percent decrease in transactions.
Why We Take Overpriced Listings
If we’re going to list property, we’re not listing property because we like having listings. We list property because we want to help the seller get their property sold. Why are we overpricing so many listings today? It’s an interesting and complex question. I have a few thoughts, see if any of them apply to you.
1. Lack of Market Knowledge
We overprice listings because we are totally unaware of the market conditions and statistics. How many homes are on the market? How many homes are coming on the market? Selling? Closing? What are the ratios compared to 3, 6, 9 or 12 months ago? If we’re not aware of market conditions, and a seller wants 595k even thought CMA says 535k, we’re going to take it at the seller’s price (if the seller is stronger than the agent).
2. Letting the Seller Take Control
You don’t tell the doctor how to do the surgery. You don’t tell the pilot how to fly the plane. Why would we then let a seller tell us how to list property? Don’t let the seller be in control of the presentation or the listing process.
3. Out of Desperation
When we need a listing, we’re willing to take it overpriced … and of course, we’re setting ourselves and the seller up for a big disappointment. We all at times don’t have enough inventory, pendings, closings … we can act a little bit out of desperation, it’s human nature! You’re gonna do it, we all do it! However, when you take a listing out of desperation, are you really doing good service to the seller? No. How about to potential buyers? No. How about to your broker? No. Most importantly, how about to yourself and your family?
4. Over-Inflated Ego
I’ve said for years, egos are not your amigos. “We can get this property sold, were smarter than everybody else in town. Don’t you know who I am? I can overprice the listing and get it sold”.
Well, egos are a very expensive thing … they get you in trouble!
5. Needing the “W”
We’re gonna beat off the competition, and win no matter what the case may be. It’s a pricing war on listings, especially for those that don’t have any. Remember, if you’re going on 3, 4, 5 valid listing presentations a month, you’re going to go into some situations where sellers are going to demand a price that is too high … and you’re going to smile, shake their hand, walk out and turn it down. That is very acceptable.
However, if you’re going on one listing presentation a month—desperation, overpricing and all of those other factors come into play. You’re probably going take a listing for substantially more than it’s worth. Then your job becomes going back repeatedly over weeks or months to get the listing price down so you can get it sold.
Record Price Reductions
Last week, there was a report showing that 39 of the 50 largest cities in the United States had a record numbers of price reductions in January (good for those agents). Las Vegas was listed as number one for price reductions … 19 percent of all listings had the price reduced, with nearly 450 submitted to the board in one day!
Seattle was at the top of the list. San Jose was top of the list. Phoenix/Scottsdale … what the world is telling us as we’re taking listings overpriced, and we’d better take some positive action to get properties sold.
Market Correction
“During the last 5 to 7 years, all getting a listing sold required was taking a listing. Meaning almost every listing we took—in spite of condition, location, terms or price—sold quickly. Prices went up quickly in most marketplaces the country, had multiple offers and pricing bidding wars took place during the negotiating process. That has virtually stopped in most of North America today”. — Mike Ferry
I sent that paragraph out to all of our clients in March of 2006 …13 years ago. We just came out of that same market over the last 6 to 9 months. What we have to look are some thoughts that we can use to get our listings sold and get price reductions in place. Over the next few weeks, I’m going to share my thoughts on how to get this accomplished.
Pricing Property
Price the listing right from the day you take it or turn the listing down. If you’re pricing at 1 to 2 percent over CMA projected price, you have to work the listing price down during your presentation. When on listing presentation, I suggest you determine fair market value, take 2 to 3 percent off, and then ask if they’ll list at that price.
There are listings all over North America that are selling within 7 to 10 days of listings being taken. Why? They’re not overpriced … these are listings that are coming on at fair market value. If you’re going to take a listing, take it at the price it should sell for.
Honesty is Key
I did a webinar not too long ago for my friends Sam and Kevin, and we had a couple of thousand people listening in … I said that in my opinion, one of the greatest sales trainers of all time was Tom Hopkins. Still a great sales trainer, but his real strength was in the 70s, 80s and 90s. Tom used to say that the seller has to like you, love you and trust you.
I can understand “like, love and trust”, but I think it’s more important that the seller respect the fact that you know what you’re doing. That you’re honed in on the market … the market starts, pricing, conditions … how those things factor into getting property sold in a reasonable length of time. You need to go into every listing knowing that you have to be totally honest with the seller … knowing the consequences could be you don’t get the listing, are asked to leave or that you get asked to take a listing overpriced. Maybe they tell you point blank they’ll list with the competition.
While all of those are factors can take place, being totally honest with the seller is probably the most important thing you can do. No need to be mean, angry, nasty or hostile with your seller. Be honest with a smile on your face, because you’re telling the truth. Every sales trainer in the world (starting with Tom, who I still believe one of the best ever) would agree that the honesty regarding price is the key factor in getting a listing sold.
Managing Seller Expectations
If you’re using a prelisting package (which I’m assuming most of you are doing today) add in the price reduction form. In most cases, it’s not as big as the contract in terms of size. Let them get used to seeing it. Even though you hope it never has to be used, we hope that when they see it they say to each other, “Honey, it’s a price reduction form. I wonder if they going to try to reduce our price?”
That’s the conversation you want them to have before you get there. They’ll get used to seeing the form from day one, so when you call back in a week or 10 days to reduce the price, they’re already primed to hear that from you.
Condition, Condition, Condition
Since buyers have multiple choices, the condition of the property becomes critical to the sales process. In 2016, condition wasn’t an issue. If you listed it 5, 10 or 15 percent over price, there would be multiple offers. Whether it was in a bad location, in bad condition, it sold … that’s not the case today. Whether you critique the property yourself with the seller and make suggestions, or you hire a staging company, do not list a property where the condition is not good. Which homes are going to sell first? The ones that are priced right and in great condition.
Everybody says location, location, location. Of course, you don’t want to list a property sitting in the middle of the freeway … but you can’t change the location. The condition is what a buyer buys, and they really do buy the price.
Learn Your Stats
Become an expert at market stats, use them on every listing presentation. Update them every couple of weeks. Bring them back to the seller to keep them informed on the market when you’re asking for a price reduction. I can’t stress enough the importance of market stats in a flat or declining market.
If you have any questions please send me an email, mike.ferry@mikeferry.com … I’ll respond as quickly as I can. Let’s go on at least two good listing presentations this week, and set a goal to go on 7 to 8 for the course of the month. Be honest with your seller on pricing … no matter how honest you are, you’re still going to win at least 50 percent of the time (and if you follow the Mike Ferry system, maybe 70).
See you next week. Thanks for today.
Mike Ferry is the global leader in real estate coaching and training. Watch Mike each week as he discusses a variety of topics to help real estate agents and brokers. Grow your real estate business by improving your mindset, developing your skills and creating a plan of action to increase your production!
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