Pricing recommendations hit troubled waters at two predictable times:
- When clients have unreasonable price expectations that need to be brought in line before the home can be sold
- When an agent gets ready to list a property that owners want to sell at an inflated, unrealistic price
Both circumstances require caution. The following sections offer advice as you troubleshoot your way through to a successful pricing decision.
Reducing prices: A five-step formula
When a client has her mind set on a price that’s out of line, the following steps can help you bring her thinking back to reality.
1. Nip it in the bud
If you’re dealing with a prospective new client, address the pricing issue at the listing presentation. Don’t think the difference of opinion will just go away, and don’t think you can make an easy adjustment later.
Be proactive. Present your analysis of market realities as they are, not as your client may wish them to be. If you delay the discussion, you’ll just lose time,effort, and emotion later on when you could and should be focusing your
energy on new business development and other income-producing activities.
2. Get the client to agree to come down
If a client suggests that she “start high and come down later,” have her agree at the listing presentation to a scheduled price reduction. In order to start at their desired prices, sellers often say something like, “I’ll reduce the price to your recommendation in 30 days.” When they make such a statement, usually they’re simply trying to end the discussion, hoping they can hold out and ultimately achieve their target prices. You need to take action and lock in a price-reduction agreement there and then in order to avoid the same discussion a month into the future.
Use the following script as you respond to the seller’s willingness to take action in 30 days:
“Mr. Seller, what I hear you saying is that you’ll reduce your price in 30 days. Is that correct? You want to try your price for 30 days, but after that, we will move to the price I Recommended, correct?”
When your client answers yes to both questions (as clients do in nine out of ten presentations, mainly because they’ve been able to delay the pain and want to move on), proceed with the locking technique, using this script:
“Mr. Seller, since we’re both in agreement about a price reduction in 30 days, and due to your business schedule and mine, let’s go ahead and acknowledge your approval of the scheduled price adjustment, post-dated for 30 days from now.”
Although all you’re doing is formalizing your client’s suggestion, the above script will likely be met by a long moment of silence, perhaps accompanied by a confused look. The key to a successful outcome is to sit silently — whoever speaks first will lose this battle of wills. If you break the silence, almost certainly your client won’t sign the price adjustment form. Wait patiently, and in more than half the cases, you’ll get a signed form agreeing to the upcoming price adjustment.
In other cases, you’ll at least pave the way for the future reduction, although some sellers develop selective amnesia on the subject. If you talk to your seller 30 days later and hear, “I don’t remember ever talking about having to reduce our price,” remind her that you asked her to sign a price reduction the night of the listing.
3. Compile pricing feedback from Day 1
Begin compiling pricing feedback the day the listing hits the market. When other agents show the home, follow up by asking them to share their pricing opinions. Continue reviewing the prices of comparable homes that have sold
while your listing’s been on the market.
When interviewing another agent, you may have to really probe to obtain useful feedback. For example, ask what top three things the agent’s client liked about the home. Ask for suggestions for enhancing the salability of the
home. Most importantly, ask if the price seems competitive with other homes shown. If the agent says the price feels out of line, ask what price seems more reasonable, and then ask if the agent would be willing to scratch out a quick note summarizing the opinion. In future price-reduction discussions with your seller, you can back your own recommendation with recommendations from other experts. In essence, you can demonstrate that the marketplace
has spoken in favor of your advice.
4. Revisit the price-reduction discussion
Revisit the price-reduction discussion within weeks of the listing. If you wait until 30 days have passed you will have waited too long, and here’s why. It usually takes one or two weeks to re-open the pricing subject, gain a pricereduction agreement, obtain a signature on a price-reduction form, and get the new price posted. Therefore, if you wait a month to get started the price likely won’t be reduced until week six. Studies repeatedly prove that once a home’s been on the market six to eight weeks, showing activity drops significantly. So if you wait until 30 days to revisit the pricing conversation your window of marketing activity will be almost closed by the time you finally post the reduction.
5. Schedule a price-reduction meeting if you have to
If a phone conversation with your seller doesn’t prompt an agreement to a price reduction, schedule a meeting in your office. You raise the odds for a successful outcome exponentially when you make the pricing recommendation in a face-to-face meeting on your own your turf and in a professional environment. As a last resort, you may have to show the sellers the competition. Make arrangements to take them on a tour through the other homes they’re ompeting against.
When you call to arrange the meeting, use the following script (in which the key word is “exposure”): “Mr. Seller, I need to meet with you later this week to discuss the strategy to
increase the exposure of your home. Would Wednesday or Thursday be better for you?”
The word “exposure” leads the seller to think you’ll be rolling out a whole new marketing strategy for her home. For that, she’ll gladly clear her calendar. If you say the meeting is to talk about a price reduction, chances are
good that the seller will try to stall and may even start ducking your calls. You have to use the right script and right approach.
Truth is, the meeting will in fact lead to increased exposure for the listing,because price is the factor that most controls exposure. If you can move the price into the competitive zone, agents are more likely to show the home,
and ads more effectively reach a larger group of better buyers.
If a seller’s motivation is high, you may still want to take the listing. If she wants to list her home at a price that exceeds current market value, be sure she meets the criteria I cover in this section. Otherwise, you’re gambling with your time, effort, money, and energy and with the odds of a Powerball win.
Strong motive to sell
Your client’s motivation to sell is the key indicator of whether you’ll earn a fee for your service on an over-priced listing. You get paid only when your client’s property sells and closes, so evaluate and re-evaluate the seller’s interest and determination to complete the transaction.
If a client absolutely has to sell — because of a job transfer, divorce, financial difficulty, a growing family, or a new home purchase for which sales proceeds are required — the odds of a successful closing swing strongly in your favor. The pressure of the pending circumstances pushes the seller to complete the deal even if it involves a necessary price adjustment.
A client who has already purchased another home becomes increasingly motivated to sell as the pressure of making two house payments comes to bear. I’ve seen clients undergo complete attitude adjustments regarding the price of their sale property around the first of the month, when they had to write two mortgage checks. Ultimately, the pain of that second check is greater than the pain of the price reduction.
Financial capacity to sell at “true” market value
If a seller owes more on the mortgage than the home is currently worth, she needs to come up with the difference between the sale proceeds and the loan balance at the time of closing. If she doesn’t have the necessary resources,
don’t take on the listing at any price.
Over the past few years, many homeowners have pulled cash out of their homes and have taken new mortgages based on appreciated home values that have already stagnated or declined. When sellers in this situation get ready to sell, they owe more on their mortgage balances than they’ll reap from the equity they’ve accumulated. This situation can cause problems for the agent. You must be sure that the seller has the equity or funds from another source to sell at fair market value and pay your fee as well Set this rule in stone: Take on listings only for owners with sufficient equity to sell at real market value or sufficient other assets to make up the shortfall.
Willingness to make a long-term commitment
If you agree to list a property at a price that exceeds its current market value,insist on a listing term of at least six months. Six months gives you enough time to market the property, reduce the price if necessary, and even put a second transaction together if the first one doesn’t close.
Too often, sellers who want to stretch beyond top dollar value also want to give you a short time frame in which to prove yourself. Follow this rule instead: Insist that the term of your listing align with the price of the listing.
For example, take a 30-day listing only if it’s backed by a 30-day price — with a 30-day price defined as a price that is 5 to 10 percent below fair market value. Most sellers want a 30-day listing at a price that is 10 to 15 percent above market value. No deal! Use the following script to align the listing period with the sale price:
“Mr. Seller, based on the price you want for your home, I’m going to need a 12-month listing Agreement. You’re asking a 12-month price, so I will need 12 months to accomplish a sale. Now, if you want to set a 90-day price of x dollars, then I would be able to take a 90-day listing. What is your desire? Which of these options do you prefer?”