When in Doubt...Cut the Price!

You may not be aware but Alain Pinel (the man, not the company) recently joined Intero Real Estate as VP of their Luxury Home Division. The following is a short article he recently published which supports my contention that there are only two reasons a home doesn't sell...poor marketing or poor pricing. If you're getting showings then the marketing is working. If you're getting showings but no offers then the price is too high. Alain's article below speaks to the pricing problem that many Sellers struggle with.

Joe Wilson


There is a rule of thumb in the real estate business that wise professionals keep reminding themselves of whenever pricing a new listing. It suggests that if a property is as little as 5% over what is perceived to be the market value, the seller loses… half of the potential buyers! Not a good idea. Worse: if the property is listed at 10% over “market value,” 70% of the would-be buyers are eliminated.
Hence question 1, to the home seller: “Do you want to just list or do you want to sell?” If listing is the deal, be my guest, put any price you want on the contract. If, however, the idea is to sell, then put a price on the house that is likely to attract as many buyers as possible and produce the best possible sale.

Now, question 2, this one to the listing agent: “Do you want to sell the house or do you want to “buy” the listing?” It seems easy enough to get a listing by telling the sellers that their home is worth a lot more than what other Realtors are recommending, but aside from a host of ethical issues, what good does it do?

As we said before in this column, there are three pricing strategies: you can price at “market value” based on pertinent comps, you can underprice a bit in hope of creating a bidding war if and when the local market is ripe for this scenario, or you can overprice and play Russian roulette (and perspire heavily).

A couple of weeks ago, an agent was telling me that in his market, on average, properties end up selling 14% under the initial asking price. Frankly, looking at MLS stats all over the country, such data is not terribly surprising. Many people live in denial.

With this in mind, some homeowners may make the calculation that, to eventually land at a serious Realtor’s suggested price, they should add 14% and wait for the winning offer. Sorry, it does not work that way! That much over can almost guaranty that the house is going to collect dust on the shelf for a l.o.n.g time; at least until such a time when the price is reduced.

I don’t have to remind anyone that a price cut, no matter how much or when, is an emotionally charged event.  So much so that when it finally occurs it is often too little, too late. The principle of a price reduction is to give new momentum to the marketing, and resurrect realtors and prospective buyers’ interest in a property. We need to create drama. The timing and the extent of the reduction are keys to the success of the operation.

Typically, in a great market, a price cut might be pertinent after two weeks of exposure and no action. In a good market, a month is usually enough time to test the market before adjusting the price. Now, the thing to keep in mind is that a price cut must be substantial enough to restart the marketing engine.

 A calendar of possible price reductions should always be part of the listing negotiation, as to avoid bad surprises.  If the market is just lukewarm, merely following the trend with a reduction every month or so, is essentially useless as other newly listed homes already integrate the new valuation and, on top of that, have the huge marketing advantage of being fresh. Any price reduction will have to anticipate on the market moves and beat the most recent comps to stay ahead of the pack.

The moral of the story is that, even though everything about pricing is largely hypothetical, experience often teaches that the lower the list price, the higher the selling price….

Alain Pinel


California Homeowner "Bill of Rights" Becomes Law

All eyes in the nation now turn to California as Governor Jerry Brown signed into law today the Homeowner Bill of Rights to help struggling Californians keep their homes. This law aims to avoid foreclosure where possible to help stabilize California's housing market and prevent the other negative effects of foreclosures on families, communities, and the economy. The new law will generally prohibit lenders from engaging in dual tracking, require a single point of contact for borrowers seeking foreclosure prevention alternatives, provide borrowers with certain safeguards during the foreclosure process, and provide borrowers with the right to sue lenders for material violations of this law.


Mortgage Rates Drop Again!

Mortgage rates have dropped again to all-time lows. This is a great opportunity for Buyers because not only are home prices down county-wide from their 2008 highs, but your mortgage payment is much more affordable at these incredibly low rates. How low are they? If you have good credit and live or work in the Silicon Valley, one of my "preferred lenders" will give you a loan up to $625,500 at today's rates:

30 Yr Fixed: 3.625%, 0 Pts

15 Yr Fixed: 2.875%, 0 Pts

Jumbo loans exceeding $625,500 are available for just 0.375 % more. Think your lender can beat these rates? I doubt it. If you own a home already, this is a great opportunity to refi, even if you've already refi's before. Want to know where to get these great rates? Email or call me and I'll be happy to let you know.


Buyer Strategies for a HOT Market

I sold three homes in the last month...all with multiple offers and for all cash! One of the three, a nice Willow Glen rancher on a large lot attracted seven offers and sold for eight percent over the asking price of $700K. A great market for Sellers but a big new challenge for Buyers in the Silicon Valley. The problem is the unusually low inventory of homes available to sell coupled with unusually strong Buyer demand. The challenge for Buyers used to be finding the right home on which to make an offer. The bigger challenge now is getting that offer accepted in the face of strong competition. Frustrating sure, but not impossible. Here's how:

  1. Make sure you have a strong loan pre-approval from a local lender.
  2. Team up with a knowledgeable, experienced, professional Realtor (I have a great referral if you need one!)
  3. Have a listing alert set up customized to your search criteria.
  4. When an interesting listing comes up, look at it ASAP, preferably the day it hits the market.
  5. Make a decision to write an offer...or not...quickly. Don't wait for the Seller to hold their first open house when all of your competition will see it.
  6. If it's a great house and you know there'll be competition, make a great offer. Make the offer tempting enough that the listing agent and Seller will think twice about not responding to it immediately. Don't worry about paying too much because your lender won't let you pay more than it's worth. It has to appraise and if it doesn't, you can renegotiate or...walk away.

Sound a little scarey? It might be but what's the alternative? Until the market turns, you can play to win or be timid and lose out to more aggressive Buyers while this low price and interest rate opportunity passes you by.