I was recently made aware of a conversation between two Realtors. One agent, who I will fictitiously refer to as Mary, had just listed a condominium for sale in a complex where another agent, who I’ll fictitiously refer to as Stella, owns one of the units. Stella phoned Mary to ask her why she had listed the unit at “such a low price.”
Although she certainly didn’t owe her an explanation, Mary graciously returned Stella’s call and discussed with her the reasoning behind the pricing of the unit. In a word, “The price is in concert with the comps, accounting for differences among the units.” Mary explained. It is also in-line with the owner’s expectations, including timing, market dynamics, etc.
Go Figure
The above scenario surprised me considering the length of time that Stella has been in real estate – many years. “How,” I wondered, “could a Realtor with that much experience still not get it? Does she not realize that it’s nearly impossible to under price a home?” From my purview, she is obviously placing too much power in the hands of Realtors and not truly understanding the principles of market value.
A Bucket of Crabs
There’s an interesting corollary involving the behavior and ethos of crab. Scientists have observed that if you place a crab in a small bucket, the crab will instinctively climb out with ease. Not so, however, with a bucket full of crabs. Out of innate envy, the others will prevent that from happening.
Humans are no different. A home that is perceived to be attractively priced in conjunction with what it offers, and relative to other offerings in the market place, will always sell. If the price is unusually attractive, it will be driven up with offers from multiple bidders. It’s a simple phenomenon of human nature. From the time we are born, we never want something so badly as when others want it too.
Negotiating
That’s not to say that the process of selling real estate isn’t complicated. A home can be under sold for a number of reasons. Under pricing, however, is not one of them. Some of them include:
- Difficulty in showing the property – It’s not easy to sell a home that the buyers can’t see.
- Pricing a home too high – Probably the most significant reason that a home is undersold. Once a home becomes stale on the market, good luck with it, because short of a price adjustment, luck is what you’ll need.
- Poor Negotiating – It’s not unusual for a home to be undersold due to mishandling of the negotiating process.
Market Value
A home is worth what a willing, ready and able buyer is prepared to pay for it. It’s nothing more than the fundamentals of supply and demand.
If you think that price is determined by the Realtor or homeowner, you don’t really understand the nuances involved with selling a home and the dynamics of market value.
Have you struggled with pricing in the past?
What success have you had in explaining market value to others?
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