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Pricing Strategies to Generate Momentum in Real Estate Sales By Gadish, Orit*
Think outside the box of location, location, location. A key aspect of real estate sales is pricing. Properties sit on the market because the price is wrong. Properties move when they are priced correctly. Pricing strategy is as critical in the real estate sales process, as is the actual initial list price. The appropriate strategy will generate the highest priced offer possible for the sale of your real estate asset. Selecting a strategy is dependent upon the property characteristics and condition, location, local market conditions, the overall economy, and the client’s needs. First Strategy: Used for Ultra Luxury Properties The segment of ultra-luxury properties exist in various markets of California. It starts with location. The flats of Beverly Hills in the 90210 zip code, BHPO, Holmby Hills, Bel Air, Brentwood and Pacific Palisades, have homes priced in the range of $5 million to well over $40 million. Most of the time there is limited inventory for the entry level homes in these neighborhoods, so rather than using a pricing strategy based on dollar per square foot, consider listing a $5 million property for substantially higher than the comparables, say for $7 million to test the market for either owner-occupant or investor buyers who are hungry for these types of properties. An investor will sometimes tear down the home, invest an additional $5 million to build a new home, and then sell it for over $20 million. If there is no buyer at $7 million, consider reducing the price by $500k - $1 million within a few weeks. Buyers love deals! Reducing the asking price by one million dollars is quite a deal, and has potential to generate lots of interest! Second Strategy: Use for Lower Priced Properties with No Pressure to Sell Quickly Another approach frequently utilized for lower priced assets in the $500k - $1 million range where there’s limited inventory of similar properties and the seller is not pressed for funds or rushed to sell, is to price the property a bit higher than the comparables. If, for example, the pricing analysis based on sold and active comparables show a property’s current value is $700,000, consider listing the property at $799,000, to test the market. If showing requests start pouring in, as well as offers, the seller is in luck! Market conditions sometimes drastically change and this works. If, however, there is no activity, and no showings, we suggest small and frequent price reductions, such as $20-$25k every two weeks until the property hits a price point where activity is generated and showings are requested. If showings continue to take place, but there are no offers, consider adjusting the reductions to $5-$10k every two weeks. The goal is to identify the proper pricing point that generates significant buyer demand, which results in increased showings, and more offers. Multiple offer situations allow the broker to further push the prices up by creating competition amongst the buyers. Third Strategy: Lower Priced Properties with Pressure to Sell Quickly In situations where the seller is pressed to sell quickly, this pricing strategy has quickly created competition and excitement amongst buyers. This strategy again applies to real estate assets in the $500K - $1 million range. Using the same property as in the example above, if the pricing analysis based on sold and active comparables indicates the property’s current value is $700,000, we suggest to the seller to list the property at $649,900. The goal is to take an aggressive approach towards pricing, very similar to the pricing set in an auction environment. This generates lots of interest from day one and creates a competitive environment among buyers. The broker keeps buyers informed that there is a multiple-offer situation, applying aggressive, yet delicate, countering measures, and pushes the prices up. Some sellers worry about pricing a property too low; however, those brokers
that utilize this strategy see positive results. When a property is placed on
the market well below the pricing of comparables, there’s a heightened level of
interest and that generates a multiple-offer situation. Often times, this pushes
the sales price to higher than market value. This strategy frequently yields
similar results as would be expected in an auction environment. |