Selling Strategy: A New Way To Look At Price Reductions
The Sarasota Herald-Tribune recently reported that the median selling price fell from $340,700 to $277,900 in their area during the year ended in October.
Here in Pinellas County, the median single family home price has gone from $268,000 to $216,000 in the year ending November, 2006, according to Pinellas Realtor Organization data.
I'm willing to bet you that median prices are falling all across the state. Call it a hunch.
The point of this is that in order for the median to be falling like that, sellers must be cutting their prices in order to get properties sold.
I want to give sellers some advice: don't be too quick to cut your prices.
At some point, sellers may need to negotiate a lower price. But to unilaterally cut the price thinking that it will increase the number of showings and help you find a buyer is not really accurate. In fact, it's kind of a slippery slope. Once you start sliding down the price-cutting slope, it gets a lot easier to cut that price again and again and again.
Before resorting to price reductions to entice buyers, I recommend that sellers make certain they have taken the following actions:
1. Price the property at its true and current market value as soon as it goes on the market. Have a real estate agent or appraiser determine the most likely price range for your property, and then stay within that price range with your asking price and in all your negotiations with potential buyers.
2. Rely on "maximum marketing" to find you a ready, willing and able buyer. In a slow market like we have today, you need a maximum marketing effort. Leave no stone unturned in your advertising program. Make use of the internet, direct mail, MLS, open houses, newspaper and magazine advertising, flyers and everything else you can find that will help to bring the message of your property to potential buyers. If your current real estate agent is not doing enough marketing, find an agent who will.
3. Use incentives as a last resort. Only if the marketing program is failing to produce a buyer should you start "fooling around" with incentives. If you have to employ incentives, make sure you are offering the incentive to the right group of people. For homeowners wishing to sell, I suggest the first incentives be directed toward the potential buyer rather than to real estate agents. If you're a developer, I suggest you direct incentives toward both buyers and real estate agents.
If you have not had any acceptable offers within a few months and you have pretty much exhausted your marketing ideas, you might at that point want to reduce your price below your original price range. By that time, the market has spoken and they have said that for some reason they are not interested in your property at that price.
But before you drop the price, you might want to try one more idea: offer to buy down the buyer's mortgage.
A mortgage buy-down requires that the seller make a one-time cash contribution to the mortgage company. For that cash, the mortgage company reduces the mortgage interest rate, and this reduces the monthly payment on the property. This reduction of the monthly payment brings many more potential buyers into the market for your property because it has now become more affordable. In effect, you have made the property more affordable without reducing the asking price. By making it more affordable, you increase the number of potential buyers. By increasing the universe of potential buyers, you may find that one buyer out there who is ready to buy immediately.
Not all mortgage companies permit buy-downs. Of those that do, there are several different plans and options available. You will have to check with the buyer's mortgage company to see what they might be willing to do.
In effect, a buy-down permits you to sell the property at a higher price less the contribution made for the buy-down. This approach often enables sellers to cut their potential losses on a sale while giving them a wider range of marketing options and increasing the universe of potential buyers. A buy-down is often a better and less costly approach than a price reduction for those very reasons.
For more information on real estate in the Tampa Bay area, visit my website at www.TheStPeteRealEstateSite.com.
Here in Pinellas County, the median single family home price has gone from $268,000 to $216,000 in the year ending November, 2006, according to Pinellas Realtor Organization data.
I'm willing to bet you that median prices are falling all across the state. Call it a hunch.
The point of this is that in order for the median to be falling like that, sellers must be cutting their prices in order to get properties sold.
I want to give sellers some advice: don't be too quick to cut your prices.
At some point, sellers may need to negotiate a lower price. But to unilaterally cut the price thinking that it will increase the number of showings and help you find a buyer is not really accurate. In fact, it's kind of a slippery slope. Once you start sliding down the price-cutting slope, it gets a lot easier to cut that price again and again and again.
Before resorting to price reductions to entice buyers, I recommend that sellers make certain they have taken the following actions:
1. Price the property at its true and current market value as soon as it goes on the market. Have a real estate agent or appraiser determine the most likely price range for your property, and then stay within that price range with your asking price and in all your negotiations with potential buyers.
2. Rely on "maximum marketing" to find you a ready, willing and able buyer. In a slow market like we have today, you need a maximum marketing effort. Leave no stone unturned in your advertising program. Make use of the internet, direct mail, MLS, open houses, newspaper and magazine advertising, flyers and everything else you can find that will help to bring the message of your property to potential buyers. If your current real estate agent is not doing enough marketing, find an agent who will.
3. Use incentives as a last resort. Only if the marketing program is failing to produce a buyer should you start "fooling around" with incentives. If you have to employ incentives, make sure you are offering the incentive to the right group of people. For homeowners wishing to sell, I suggest the first incentives be directed toward the potential buyer rather than to real estate agents. If you're a developer, I suggest you direct incentives toward both buyers and real estate agents.
If you have not had any acceptable offers within a few months and you have pretty much exhausted your marketing ideas, you might at that point want to reduce your price below your original price range. By that time, the market has spoken and they have said that for some reason they are not interested in your property at that price.
But before you drop the price, you might want to try one more idea: offer to buy down the buyer's mortgage.
A mortgage buy-down requires that the seller make a one-time cash contribution to the mortgage company. For that cash, the mortgage company reduces the mortgage interest rate, and this reduces the monthly payment on the property. This reduction of the monthly payment brings many more potential buyers into the market for your property because it has now become more affordable. In effect, you have made the property more affordable without reducing the asking price. By making it more affordable, you increase the number of potential buyers. By increasing the universe of potential buyers, you may find that one buyer out there who is ready to buy immediately.
Not all mortgage companies permit buy-downs. Of those that do, there are several different plans and options available. You will have to check with the buyer's mortgage company to see what they might be willing to do.
In effect, a buy-down permits you to sell the property at a higher price less the contribution made for the buy-down. This approach often enables sellers to cut their potential losses on a sale while giving them a wider range of marketing options and increasing the universe of potential buyers. A buy-down is often a better and less costly approach than a price reduction for those very reasons.
For more information on real estate in the Tampa Bay area, visit my website at www.TheStPeteRealEstateSite.com.
-30-
posted by Terry Ward at 3:49 AM
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