Pricing a Property Correctly
|It’s funny to me, the stories I hear about how people price a property for sale. “We really need to net this amount.” “Try this price; I don’t want to give it away.” “We can always come down later, but we can never go up.” “We are the best property in the neighborhood so it is worth more.”
Pricing a property is about what the “market will bear.” Listing a property needs to be based off of current market data, not emotion or other drivers.
In my investing career, I’ve seen many real estate professionals with different listing styles. There are the ones who believe in giving the client what they ask for, or the agent who will “get the listing at any price” – often these properties are overpriced and two things come from this: 1) the property sits on the market without any movement 2) the offers that are submitted are “insulting” and not considered. This approach is counter-productive, in my opinion.
There is also the approach of underpricing the property to get a lot of attention and hope for a bidding war. This can be a dangerous strategy but can also work if managed well. Remember, only the seller and the seller’s agent will know what offers come in. You can reject them all if you choose. The only problem is that the property now has a price point stigma. Know that all historical pricing is available to the agent in the MLS. If this is an approach you are considering, you might look at an Auction.
There is a great deal of debate on the auction format in the real estate industry. Here are a few pros and cons.
Auction – defined as, held in public where property is sold to the highest bidder
Pros
Sense of urgency – “Get it now or it will be gone” mentality. This means that people must get off the fence and make a decision.
Buyer competition – this can create a frenzy and people can end up paying more than they intended. If you are the buyer you must be disciplined.
A reserve price – to protect your investment a reserve price can be set which means it must reach that price or it won’t be sold.
Terms – you can limit the contingencies and terms with an auction. Take it or don’t bid.
Cons
Cost – depending on how this is done there can be additional cost. Often, if you find the right agent or auction company to facilitate the auction, these costs can be taken out of their commission.
Terms – as much as limiting terms can be a plus, it will also limit the pool of buyers.
Comps – if there are a lot of similar properties with recent sales values, this can be negative. Supply and Demand.
I believe in precise pricing. To net the most profit, I believe this is the best pricing strategy. What this pricing strategy also does is shorten the days on market. There is a direct correlation between days on market and selling price. Keep that in mind when pricing.
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