Monday, July 29, 2013

Pricing - Who is fooling who? Was the Seller Insistent or did the Agent Tell the Sellers what they wanted to Hear? Or was it right from the Get-Go?

Pricing a property is really the most critical piece of selling a home.  In my mind, it's the number one reason why sellers use real estate agents.  It is the summation of the product, the value of the promotion and positioning.

Sellers don't have access to recent sales and even if the tax records were updated more quickly, the tax records do not include photos and does not have information regarding features, amenities and finish level.  The sellers don't necessarily know how to adjust for differences between relevant comps --- view, floor level, differences in amenities like parking, elevators, gym, etc.

It's also emotional.  There is so much at stake for the seller.  The difference of $10,000 can mean so much even for high income earners.  Think about how long it takes to save $10,000.  However, $10,000 on a $510,000 property (current average sale in Hoboken) is only 1.8%... nothing in percentage terms.  Some may be selling to move to the burbs and that $10,000 could go to a child's college fund, help renovate a kitchen, pay for a new roof on the home they are purchasing.  For the those that are selling because they are retiring, the sale of their home could be the last big transaction of their lives.  As they go on a fixed income, $10,000 might be 3 golden year vacations, a chance to contribute to their child's wedding or a grandchild's college fund or just have the ability to be independent for another year as they get older... There is a lot at stake.

An agent is just an advisor.  What a property lists for is ultimately up to the seller.  An agent makes an upfront financial and time investment in a listing.  That is, we have to do most of the critical and time consuming work at the time it's listed... Pricing analysis, professional photos (I always have professional photos taken for all of my listings), terse advertising copy that puts the units best foot forward, strategies for addressing objections, distribution....All agents can put it on the MLS, but the best agents do much more than that. I have developed networks with Douglas Elliman (Manhattan's and the nation's largest agency), Prudential networks both corporate through Prudential's relationship with Brookfield, my newsletter and search engine lists and more.  We will also typically do open houses, broker to broker email blasts to introduce it to the market.  If it's not priced correctly or if the seller won't work with offers, we have spent our time and money.

An agent has a choice when a seller wants to list a property for an untenable price.  We can say no thank you and not take the listing -or- we can work with the seller make them realize that it's best to list at the right price -or- some tell the seller what they want to hear to get the listing and hope the lack of showings and interest helps get the message across that the price has to be lowered.  I thing the latter is just plain dishonest.

A good agent will take care of the "Positioning" the property (the 'Place' from the graphic above), communicating to the market that the product is available (the 'Promotion' from the graphic above).  The Seller can improve the "Product" by painting, cleaning, de-cluttering, fixing those small items that are eye sores or albeit small just distract prospects.  Product, promotion and positioning culminate in the price... 

Sellers fooled agent who tell them what they want to hear may be glossy eyed in picking an agent who promises a great final sales price, but they may not be getting the best agent.  The best agent is the one who is honest with the seller.    . . . But again, this is very emotional and there is so much at stake, it's hard for sellers to resist that fantastic number.

Take a look at this embedded spreadsheet that takes a look at the price history of Hoboken and JC's current inventory.  I took a deeper dive on 1-4 families since A) it a reasonable number of units to look like B) pricing is more difficult since condos are more commoditized, more comps, the square footage is fixed which is not necessarily the case for a 1-4 family.

Hoboken only sold seven 1-4 family homes in Q2 vs 25 in downtown JC although Hoboken and JC both had 25 1-4 families for sale in Q2.  Hoboken's performance in selling its 1-4 family inventory was poor in comparison to downtown JC.  What happened?  To me, it's obvious, Hoboken's 1-4 family inventory was not priced correctly.  How much did it hurt sellers in the end?  Was it the agent or the seller?

There was one listing (1301 Park) that was initially listed for $1.699MM. It went to $1.550, then $1.199 and finally to $999,000 and then went under contract.  I showed it when it was priced at $1.199MM.  My buyers did not want to put in an offer because they did not want to be the bidders that talk the seller a lesson.  They didn't want to insult them.  They happened to be developers who wanted to rehab the place.  It was the list price that made them move on.

I believe, only when it was listing at $1.199MM did it get its first offer.  It took 60 days to get to that price point.  It still was not enough and 3 weeks later the priced was reduced to $999,000 and it final got a bid and went under contract.  How much did the seller give up in competition because the listing started at such a ridiculous number? It's under contract so I don't know what the agreed upon price is but I bet it's $950,000 or frankly less.  Let's ear mark that and see what it actually goes for.

If he priced it at $950,000, $940,000 would it have gotten bid up to $980,000 or $990,000?  A listing does not get anywhere near the same attention it gets in the first 2 - 4 weeks of being on the market.  How much did the seller give up by waiting 2.5 months to price it correctly???

See the embedded document for more on Hoboken's pricing performance vs JC. (It's better if  you download it)

I find the whole pricing strategy fascinating.  Because of Dodd Frank regulations, appraisers are forced to look at property differently and to be very, very conservative.  Appraisers more so than ever are backward facing while realtors not only look at comps but consider the direction of the market.

I have appraisers who have called me to give my opinion on difficult to price properties --- mostly the one to 4 families since condos are more commoditized.  I also was an underwriter for Chase, went through their credit underwriting program and reviewed over 4,000 appraisals.

With pricing you can take two different tacks.  You can price high with the expectation of negotiating down or you can price lower in the hope of creating a pricing frenzy where buyers put their best foot forward to get the highest and best offer.  And, when I say 'high" and "low", I am talking within a really tight range of what the property is really worth based on comps and market direction.

I have seen property priced maybe 2, 3% above where the comps and trends really indicated it was worth and it got nothing in the way of traffic and as soon as it was dropped by that 2%, a flood of showings came in.  Sellers have to realize as much as they don't want to take one dime less than they should buyers don't want to pay one dime too much.  There is a lot of risk on both sides and the market is extremely price sensitive.

Sellers, typically, are more comfortable pricing on the high end and negotiating down.  Understandable.  They see the list price as the limit of what they are going to get.   However, that has not necessarily been true especially this year.  With inventory so low or at least starting out the year so low, we have seen bidding wars where the sale price went well above the list price.  I have seen buyers waive appraisal contingencies in order to win bids knowing that the property would not appraised, ie "making the market".  You may as well pay a premium now since the prices are going up.  It takes you another two months to find a home to buy and you will pay that much more on a PPSQFT basis everything else ceterus parabus.  Again, this is a prime example of how an appraiser does not exactly do what an agent does.  The agent can look at the trend and say it X amount of time you should be here anyway.  Even if the appraiser believes the same, he cannot take that into account when doing an appraisal.

Sellers need to realize that when they put their property on the market, Buyers are much more educated about the market than they are.  Buyers look for a long time before entering a bid. They start their search online, comparing price to location, size, amenity.  Sellers tend not to do this when listing.  They might look but since they are not searching for a property to buy they don't do it for long and as objectively in terms of how their home really compares to the others.

After looking online, Buyers then go out and look at property and likely adjust their expectations  between their stated budget and what they will really get for that.  They start to do the "con-joint analysis" in their heads.   "Ah... I can't keep within my budget but I won't be anywhere near the water, the PATH or I will have to take a much smaller unit, with no elevator, no W/D, no gym or I have to be willing to spend more".  After looking and comparing, seeing which properties they have actually viewed go under contract and sell, they are far more educated than the seller.  The seller really doesn't begin to learn the market until the property has either been sitting their for so long, they get the picture that their price is whack --- still not knowing what the right list price is or until they get the first offer.

Last year I had a listing where the seller was only getting marginal offers.  Sort of an acceptable price but a poor credit quality candidate... low down payment or VHA or hard to get to the finish line loan program.  He realized the price was just a little too high and he had to let go a little on the price ($10,000 on a property worth over $600,000 (1.6%) to attract buyers that would actually close.

When talking with your agent about list price, sellers need to realize that you can only introduce the property to the market once.  Buyers that are really ready to buy are searching regularly and if the property is price too high, they write it off.  If the seller reduces the price, A) it's not always noticed.  They often recognize the photos, realize they already wrote it off their list and don't even notice the price adjustment.  Think of what it's like when you receive the same piece of junk mail from the same company for the same product.  You begin to recognize the colors, the logo, the tagline.  Literally in a split second you throw it out and if they told you they are now giving away the product you'd miss it.

B) sometimes even if they notice the price reduction, they already have a bad taste in their mouth...."What's wrong with the property" runs through their heads.  "What wrong with the sellers?" "Are they lunatics".  Sellers need to realize, another big thing for buyers is they do not want to have remorse or cognitive dissonance.  People do not want to look and feel foolish.  It's such a big decision, it's worth money to the buyer to know and feel like they made a good financial decision.  If they are scared that the sellers are trying to get one over on them, they shy away.  They want to feel good about the purchase.

I recently had a negotiation on a unit at 700 Grove.  I have been looking with this buyer for about a year now.  He really wants to buy and he is very financially prudent.  700 Grove was hit hard by the storm.  Video of the lobby in 4 feet of water was all over YouTube.  I call it one of the poster children for the storm.  In the 6 months after the storm, it came out there was damage, that flood insurance would not pay for it and that the damage to the garage was structural in nature.  We had been looking for so long and this was it.  The unit had everything he wanted - elevator, parking, steel and concrete construction, he liked the location and the development that was happening in the area, closet space for his wife.  It was right within a two week period that the building had the outcome of an engineering study that was shared at an owners meeting that showed that the damage was structural and according to the building's engineer was the result of poor, inadequate design and the Association had decided to sue the developer.  We withdrew our offer.  It was so emotional that he was that close to either getting what he wanted or he was about to get himself in a world of financial drama, that we had to take a break.  He had to step back at least in part in my mind because of the emotional disappointment and frankly fright that he could have gone under contract before this information was available.... Caveat Emptor.

Net, net . . .  price correctly.  Even in an increasing value market sometimes too much is too much.  You can't introduce the property twice and price reductions make the sellers look like they are unreasonable.

Provided by Donna Antonucci
Prudential Castle Point Realty

Friday, July 26, 2013

Open House Line Up