Thursday, May 10, 2007

Price Reduction: Get your price in line sooner rather than later!

We've had to have this conversation several times quite recently, so the topic seems to be timely: The Dreaded Price Reduction.

This conversation usually takes place for one of two reasons:

1. Your agent, being pro-active, gives you a call and suggests that things could be going better and tells you that a price reduction is in order.

2. You, an anxious home owner, call your agent to ask what the heck is going on with the marketing of your home. This is a tough conversation because you are probably trying to come up with a good enough reason to fire your agent, but we deflect the conversation into a talk about a price reduction.

  • Why should you consider making a price reduction for your home?
  • What kind of an effect will changing the price on your home have?

There are many good reasons and we'll do our best to outline them all here.

The most basic concept is that you (and your agent) can control the number of showings of your home - like a spigot or a faucet - with price. The lower the price, the greater the rush of people that come through your property.
  • Don't belive us? Perhaps we're only recommending a $10,000 or $20,000 reduction. You wonder what that could do? What if we reduced your price by $30,000? $50,000? $100,000? Do you believe more people would come see your property with these reductions? Good, then we've proved the concept of a price reduction.

How do you know when it's time for a price reduction? There are two indicators:

  1. Your property gets showings, but after 25 people come through, you don't receive a written offer on your property. Our inventory consists of condominiums and townhomes in the City of Chicago. The properties in our inventory usually get a written offer somewhere within the range of 25 to 40 groups of people visiting the property including people that come to open houses.
  2. You are not getting the number of showings that you should. Our inventory is generally located in the same group of neighborhoods, and is often similar in character and price. We can compare the number of showings for one property to another. If your property is not being shown as often, you are due for a price reduction.

If your property is being shown regularly, but doesn't receive an offer in a reasonable time period, then a slight adjustment is quite often just enough to get prospects to choose your house instead of another one.

  • A price reduction in the order of 1.5% to 2% of your current list price might just do the trick.
  • This is inportant: People WILL (with 100% CERTAINTY) use your high price to justify the purchase of a property with a better price. You MUST NOT fall into the trap of telling your agent to tell prospects that you are open to offers. You will not receive those offers; good prospects will simply vanish.
  • In one row of townhomes where we have two townhomes listed and one more with another company for sale. One is $629,900, one is $615,000, and one is $609,000. The owner listed for $629,900 told us to tell everyone that she's negotiable, but would not make a price reduction. Which townhome do you think sold last week? That's right - the one for $609,000.

If your property is NOT being shown regularly, then we're farther off on the price. In these rare instances, we are going to recommend a price reduction of 3% or 5% - which can be a tough pill to swallow.

Another recurring misconception on making a price reduction is that you'll convey some sense of negative motivation - or - desparation. In fact, a regular schedule for making thoughtful adjustments to price conveys several messages:

  • You're a serious seller,
  • You've thought carefully about your list price,
  • You've tested the market,
  • When the market responded with indifference, you took action,
  • And that you have a plan to follow that will get your property sold in a reasonable time period without giving away too much on price.

All the while, you might be thinking: "Let's Go In A Different Direction." This translates into - "We're afraid we made the wrong choice selecting you to be our Realtor, and doing something different means hiring someone different."

If you have hired an agent with these qualities:

  • Works full time,
  • Works for a recognizable real estate firm in your area,
  • Has not just started in the buisines (i.e. has a verifiable track record for success),

and the marketing program for your home includes:

  • Exposure through the MLS,
  • A company website,
  • A personal website,
  • The ability to add your house to, Craigslist, Trulia, Zillow,, your most popular Newspaper's website,
  • Some newspaper advertising,

it is most likely that a new Realtor is not necessarily going to bring any additional exposure to your property for sale. Plus the downtime between when one listing is cancelled and the another marketing program gears up can add an additional month to the time it takes to get you to the closing table.

Don't let time drag on, as time is money and in today's competitive marketplace you don't want to be positioned poorly in response to ever-changing market conditions.