Developing Your Pricing Philosophy

Ask a dozen agents to explain their home pricing philosophies and you’ll get a dozen different approaches. And if the talk reveals frank responses, you’ll also discover that the most common pricing strategy is no strategy at all.

Break out of the ranks by establishing and following a specific strategy for arriving at the ideal selling price for each home. The best strategy to adhere to is the one that says a properly priced home is practically sold. Adopt the philosophy that in real estate sales, price is king. Price trumps all other factors —including marketing approaches, home condition, market competitiveness,and sales approach. I believe that in the end, marketing and condition of the property are controlled by the price.

The alternative strategy, advocated by many agents, most sellers, and even some sales trainers, is to emphasize marketing over pricing. Instead of working to set the ideal price, they believe success will come from optimizing the home’s condition and presentation and then marketing it with skill and savvy.

Based on years of experience working with sellers who wanted unrealistic prices for their homes and therefore experienced first-time sales failures, I stick to the “price is king” approach. Over my sales career, I resurrected and re-listed more than 600 expired listings — nearly 75 a year. In all those transactions, I never met an owner with an expired listing who thought an unreasonable price had anything to do with home’s failure to sell. They all blamed the previous agent and that person’s approach to marketing. Each sought some magic marketing strategy to change the reality of the law of supply and demand. There is a magic strategy: Price the home correctly.

Price is the only factor that can overcome sales obstacles, compensate for a home’s deficiencies, and motivate a purchaser even if the condition of the property and your marketing approach are less than perfect. If you take and
price a good listing competitively, it will sell. You can’t keep a well-priced listing a secret!

Avoiding overpricing just to please the buyer

Hope isn’t a successful pricing strategy, and the please-the-client mindset is a difficult one to abandon. Agents who achieve listings with unrealistic prices find it difficult to later counsel their clients honestly.

Does this scenario sound familiar? An agent (usually a newer agent) is short on business or maybe even desperate for the chance to stake a sign in someone’s yard. The agent wants a listing at any price — even if the chance to seal a deal on the listing erodes the likelihood of actually selling the property.

This is commonly referred to as buying the listing. To gain a seller’s nod of approval, the agent makes a flatteringly high pricing recommendation, throwing out a number the client wants to hear, and then hopes something good will result from the bad situation. I can think of few examples, if any, in which this approach actually works.

I have a friend with a home for sale where I live in Bend, Oregon. He selected an agent who clearly demonstrates the “get the listing at any price” mentality. The result: His home is for sale at a price at least $200,000 over market value. Every agent in town knows it’s overpriced. The listing agent knows it, too, but he’s more interested in the For Sale sign than the Sold sign. He’s hoping something good will come out of this poorly priced situation, but the only way the seller and listing agent can come out on top is to find a two-suitcase buyer — a buyer with one suitcase full of money and another suitcase full of stupidity!

The pitfalls of a please-the-client approach are many and significant. By overpricing, you can practically count on a reduction in your productivity, profitability, and salability (your sales and success track) because

  • It’s impossible to keep your productivity high when your time is spent in conversations with an unsuccessful seller who lacks motivation to take corrective action. The seller’s negativity, concerns, and phone calls only increase with each week or month the house remains on the market. As time goes on, you devote more and more time unsuccessfully trying to create a sale, not only for your seller but also for yourself. This extra work pulls you away from activities that are more likely to deliver income,and the ensuing frustration strips your motivation and stunts your ability to secure better appointments that create other income opportunities.
  • An unsold, overpriced listing costs you time and money to service while it delivers no revenue to your business. The situation only gets worse the longer the listing languishes on the market. You’ll end up deducting the expenses of this in-limbo listing from the proceeds generated by any revenue-producing deals you manage to close in the meantime, reducing your net profit and business success

Unsold homes that linger on the market seriously diminish your salability. Your salability is based on such key statistics as your average ratio of listing price compared to sale price and the average number of days your listings are on the market. Obviously, these statistics, which prospects rely on when choosing one agent over another, can be crushed if you want to get listings at any cost; they’re also harmed by the tactic of starting high and reducing the price later, which I focus on in the next section. You can also develop the reputation of being an
agent who only pounds For Sale signs into yards. People notice when you haven’t posted any sold signs.