Let’s get right to the real estate market update and what is driving sales. I also want to talk about over pricing, multiple offer pricing and relevant pricing. Just as you have likely noticed the quietness of the market, I am quite shocked at the business climate the past 45 days. I am struggling with where we are right now nationally as well as Florida. I know Miami is on its heels after years of strength. Naples has been slower for about a year. Jacksonville greater seems to be the same as Orlando and Tampa Bay which is steady.
Interest rates are likely done moving up after the feds ¼ point raise. Mortgage rates are falling as the short term rates are rising. My prediction is a very weak GDP for the 2nd, 3rd and 4th quarter. This could result in real estate sales prices becoming weaker through the end of the year.
The weakness in May-June speaks volumes because May and June are typically the beginning for the June-July selling season as parents jockey for homes before the start of the new school year. As of right now (June 19, 2017), I see a passive and lethargic real estate market. We do occasionally see a lull occur in the middle of summer with school letting out and vacations beginning. This could be a factor.
As I have spoken about many times in my past quarterly reports, Americans are creatures of habit and without any doubt, crave safety and certainly about their future. They expect and literally demand certainty from the US government and leadership. If they lack certainty, they clam up and put off a decision until they feel safer and on better footing. That being said, the current political environment has cast doubt among many. I believe we are stuck with an uncertain political climate until the public gets comfortable and starts “making moves” again both figuratively and literally.
My suggestion: if you are selling a home currently with us or plan to shortly, price that home with no wiggle room. Homes are selling, but only the ones that are either in a hot neighborhood or are priced to attract buyers. There are three ways to price a property: Multiple Offer Pricing, Relevant Pricing and Over Pricing (or Wiggle-room pricing). Let’s explore each and the pros and cons with an in depth exploration…
Most agents fall back on the Over Pricing strategy. They add wiggle room and list with the intention of negotiating down to a “meet-in-the-middle” number. When sellers do this, they typically end up lowering the price to get an offer (and thus missing opportunities during the time they were overpriced), never get an offer, or end up selling into a vacuum which means selling to one buyer well-below list price.
Multiple Offer Pricing
Multiple Offer Pricing is the most aggressive method whereby a seller prices the home slightly under or right at market valuation. Buyers love these properties because seldom do sellers or listing agents use this strategy. The reason listing agents don’t is because they typically over price homes which goes along with their tendency to overpromise service and performance. They do this either to get the listing and/or because they believe they need to over price to leave themselves a cushion for the “meet-in-the-middle” method of negotiating (a technique I do not agree with). They also may not understand or feel comfortable with managing the multiple offers that may come from Multiple Offer Pricing.
Another reason why sellers don’t use Multiple Offer Pricing is because many sellers believe they must accept a full-price offer. This is a misconception. In our case, our sellers ask us what we think and we know the seller wants honesty and guidance. We explain different pricing strategies and we know how to manage them. Multiple Offer Pricing is powerful because buyers assume they can buy at the list price or slightly below the list price. They innately feel a sense of urgency because they recognize the value and realize others will too…and the offers flow. Our strategy when using Multiple Offer Pricing is to be very patient and try not take an offer for the first 8 days of a listing to ensure we have seen most of the offers. If we see additional showings in the near future we wait on those showings to be completed before taking an offer. We often drive the final price well above the list price. By using this strategy, we get to pick the ideal buyer with the ideal terms.
Relevant Pricing is our go-to pricing method and is based on setting the value we think is accurate for the home (based on CMA data, seller’s opinion of value and other relevant market analysis). Setting a relevant market price is an artful process that takes into account scientific data but at the end of the day, only the actual market can tell us what the value really is. Keep in mind, this is not a static concept and value can be influenced by fluctuating factors such as timing, current demand and other competition.
Using this method, we set a list price no higher than what we believe a good, well-suited buyer will pay. Our intention is to receive a full-price offer. The reason why this pricing strategy is effective is because buyers make offers based on what I call “hopeful buying” (optimistic state that an offer could reasonably be accepted). Most buyers place offers with the intention of meeting the seller in the middle. If an offer is not a full-price offer at our “relevant list price” than it is a meet-in-the-middle. That being said, the lower the list price, the higher the hopefulness of buyers. Hopeful for what? Hopeful that they can get a deal at their “happy buy number” (amount they will be satisfied buying at). That hopeful “buy number” is a meet-in-the-middle offer.
The technique of relevant/accurate pricing hinges on a seller (or the agent negotiator) being of the mindset that whether a buyer brings their offer up to the relevant list price or not does not matter. If a buyer walks, that’s fine. But, buyers never walk, they circle…meaning they are always thinking about raising their offer. All the pressure is on the buyer. My expression is, “we care about all buyers, never one buyer.” When the buyer knows the price is good, they are more likely to hang around and stay in the game.
Let’s consider a pricing example for all 3 types of pricing:
You have a seller who wishes to add wiggle room and lists a home for $480,000 with a “walk number” (amount they will accept) at $440,000 and a “happy walk number” (amount they will happily accept) of $450,000…In this scenario, the buyer’s hopeful buy number is $440,000. So that buyer would have to offer $400,000 to meet the $480,000 seller in the middle (a huge gap!) That offer is unrealistic and the buyer has no hope of getting the seller down that far. Therefore, no offer is coming! This is how Over Pricing can backfire.
Relevant Pricing may be $450,000 which in this case is the seller’s “happy walk number.” So, if the buyer wants a $440,000 deal they would offer $430,000 and meet in the middle at $440,000. That is both realistic and satisfies the “hopefulness” of the buyer.
Multiple Offer Pricing would be a $440,000 list price. All buyers from $410,000-$440,000 want to place an offer and a multiple offer situation may occur. When that happens, the best buyer wins out and so does the seller because the seller ends up with more options and possibly the leverage to bring a buyer up to the happy walk number.
My new book about real estate should be out by September. The title is The Sand Box. It’s all about what’s wrong with the way the majority of listing agents do business and how to effectively negotiate.
As always, if you have any questions or concerns, feel free to contact us at 877-232-9695.