Price Reduction Strategies
You have to understand that when you’re asking for a price reduction, you’re creating a hostile environment not only for yourself, but for the seller as well. Sellers aren’t going to be excited … they’re not sitting around saying, “Honey, I hope the agent calls us regarding a price reduction this week.”
The very phone call in which you bring up the idea of coming by to talk about price creates resentment … a little stress … a little fear … “What’s going to happen next?” “Is it ever going to sell?” These are all normal.
Last week, we discussed using price reductions when necessary. This week we’re going to go over some price reduction strategies.
Agents Create Expireds
Yes, we take listings that are over priced, we know it … look at the number of expirations in the market today compared to a year ago. A year ago, services like RedX were getting complaints, “Where are the expired listings?”
Today, that’s changed. Why? First of all, they’re expiring because of price. Second, because of condition, and third, because of inadequate marketing. When you look at that situation, a big portion of the blame for expired listings would be ourselves.
Not All PR is Good PR
We put a sign up in a yard. We put our name across the top … call for Mike, call for Mary, call for Bob. That sign in the front yard is a wonderful method of “branding” (one of those hot topics we deal with every day) for creating exposure. Obviously, it could get you a lot of potential calls. It’s a huge recognition factor in neighborhoods, because everyone who drives by on the way home sees your sign every day … but also don’t forget that neighbors have conversations. “Mary, I wonder why it hasn’t sold?” “Mary, I wonder what it’s listed for?” “I wonder who the agent is?”
If you have a listing and the seller will not reduce the price after the first 30 days, take the sign down. (Your broker will probably yell at us both and send me a nasty letter, but I’m used to it … I get them all the time.) Why would you take the sign down? Because it’s negative advertising on your listings!
Why do you want to have your listing with a big sign in the front yard that says, “Ask for Mike” if it sits for 30 or 60 days without a sold sign? People are driving up and down the streets saying, “Boy, that agent must be a pathetic agent. Honey, that thing has been for sale forever, hasn’t it?”
If you’re into branding yourself, brand yourself in a positive manner by not having a negative situation taking place … don’t leave a sign in a front yard on a property that’s never going to sell because of price.
Motivation is Key
When you’re prequalifying a seller, you’re looking for their motivation to sell and the financial condition of the property compared to similar homes on the market … this makes prequalifying vitally important to the entire process. If you’re not willing to prequalify 100 percent of sellers by asking every prequalifying question (and listening carefully to each answer), you’re doing a tremendous disservice to the seller.
Prequalifying is the answer to 90% of the problems that we deal with … the better we are prequalifying, the better we are at getting a listing sold. Why? Because we understand the seller’s motivation! If the seller’s motivation is a 3 on a scale from 1 to 10, the listing is going to be over priced. If their motivation is an 8, not only is it going to be more reasonably priced, they’re also going to be much more willing to listen to the advice you have to give.
So therefore, you have to prequalify 100% to get it priced right and get it sold.
Be the Very Best
One of the most successful leaders in American business was Jack Welch, former chairman of GE Corporation for 20 years. (He retired in 2001.) I’ve read every book I could find on him, and I’ve studied his management philosophy because I believe he’s a genius. He had 275 individual corporations under the GE umbrella, and his policy was that every corporation he was in charge of—it could be the refrigerator division, the train division, the airplane engine division—had to be either #1 or #2 in their respective market. If they couldn’t become #1 or #2, he either got rid of that company entirely or changed the leadership.
“Mr., Mrs. Seller … your motivation to sell seems to be quite strong. We need to determine how do we become #1 or #2 for sale among your competition when it comes to pricing, because that’s how buyers choose a property. Will you consider a price reduction so you’re #1 or #2 for your home size and condition?”
It’s pretty hard for a seller to say, “I don’t want to be #1 or #2. I want to be #863.” “I want to be #42.” With their answer, they’re telling you their motivation again. If they say they don’t care for #1 or #2, in essence, aren’t they effectively saying they don’t care if their property sells?
Present the Market Stats
After 15, 20, 25 or 30 days, I’m going to say to a seller, “Mr., Mrs. Seller, do you understand what these market statistics mean and how they affect the sale of your property? We took 271 listings last month in our little local market, and 131 sold … yours wasn’t one of them. The ones that did all sold for a price of fair market value or below. These stats prove that we need to consider lowering the price.”
Remember, if the motivation is strong enough, they will consider lowering their price.
Inform to Engage
To get prices reduced and listings sold, work on extraordinary customer service. Always have strong, honest, truthful, upfront communication between you and the seller on a weekly basis. A couple weeks ago, I did a webinar … the host, Kevin, asked a great question. “How far do you go with this, in terms of being honest?”
“Mr., Mrs. Seller, we had no showings the past week.”
That’s it, that’s my conversation.
“Now, the reason we had no showings is because the properties that were selling were all $12k to $15k less than yours. We had six showings and no offers, which tells us the property is over priced.”
It’s not complicated.
“We ran this ad, and we had this many calls on your property. We had this many calls on your sign. We’ve had this feedback from other agents showing your property over the last couple of weeks. I wanted you to be aware that.”
The biggest challenge sellers face (and the thing that drives them crazy) is real estate agents taking a mental vacation for 10, 12, 16, 20 days after a property is listed. The most important communication takes place the day after the listing, and then within 3 to 10 days to keep them engaged in the process.
Prequalifying, Again
If a listing hasn’t sold after 30 or 60 days, go back and prequalify your seller again to make sure they really do have the desire to sell. The longer a listing is on the market, the more the seller’s desire to get it sold could diminish. Give the listing back if their motivation has dropped or stopped.
People become discouraged 30 or 60 days into a listing; it’s very common. They’re saying, “Well, honey, maybe we need to wait until the market gets better. Maybe we should wait until the summer. Maybe we should wait until the fall.”
Their motivation goes up and down … it’s normal. We need to engage them in conversations, and make sure they still have a desire to sell.
Build Your Skills
If in 2019, we have 5 million deals take place in the US—listings sold, buyer-controlled sales— that’s an enormous number of transactions. Those transactions are not being done on properties that are 10% to 30% over priced. They’re not being done by agents who don’t have the skill to go out and work or communicate with their sellers. They’re being done by highly skilled agents like yourself, with highly motivated buyers and sellers like the ones you’re going to work with.
Work on your skills. Work on your price reduction thoughts. Be more open and honest with sellers during your presentations. You’re going to have the success you want.
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!
Join The MFO Newsletter: