January 2011

Pricing on Target

Plus, 7 Tips For Managing Seller Expectations and Dealing with the Daily Frustration

By Bridget McCrea

REALTOR® Dee Wille has seen more than her fair share of overpriced listings over the last few months. Sellers, it seems, don’t want to accept the fact that housing prices have withdrawn, leaving some of them “upside down” in terms of their mortgages, and others wondering why in the world their precious abodes aren’t worth what they were five years ago. 

These scenarios have sent Wille, a broker with Century 21 New Heritage in Hampshire, back to the drawing board when it comes to listing presentations and CMAs. “I’ve had to walk away from some listings due to pricing issues, but for the most part I roll up my sleeves and try to help out,” says Wille, who has been in real estate for about 20 years. 

A dose of compassion backed up by accurate numbers (including six months’ worth of sales data, current absorption rates, short sales and foreclosure data, etc.) helps Wille gain solid footing with her sellers. She also looks at how much equity the owners have in their properties, and factors in any refinancing or equity loans that have been leveraged against the homes.

Next, she explains that there are some positive aspects to the current pricing levels. For example, the homeowners who sell at a lower price than expected will likely make it up on the other end by paying less for their new house. Wille worked with a seller in August whose home was on the market for 12 months, despite the fact that the owner was motivated to sell the five-acre property, which no longer fit her lifestyle. 

“My seller got an offer, but it wasn’t where she wanted it to be,” says Wille, who spent two weeks trying to make the deal work by presenting comparable sales data to the seller, and explaining that the hit she would take on the sale would even out when she purchased a new home. To get those comps, Wille researched both current and archived MLS data, and highlighted information like total days on market (as opposed to recent days on market) in red pen on comp sheets. “It was a tough sell,” says Wille, “but my seller eventually went for it and paid less than expected for her newhome.”

Preparing for Battle

REALTORS® statewide are struggling with lower home prices and extreme seller frustration. According to the September Illinois Association of REALTORS® (IAR) Broker Sentiment Survey, managing brokers were seeing slow conditions across all markets (rentals were the exception), with short sales and foreclosures continuing to permeate the state’s real estate market.

Brokers also said sellers were taking “large price reductions.” Top strategies being used to deal with the pricing issue include reviewing pricing with sellers on a regular basis; using IAR
quarterly market and MLS reports as a basis for price reduction requests; advising sellers that inflated pricing may reduce showings (and if sold, the property may not appraise); and “going as low as you can without needing negotiating room.”

Bob Corcoran, founder and president of Corcoran Consulting Inc., in Chicago, says that proper pricing is an ongoing challenge that has become more onerous in today’s market. “Price is everything,” says Corcoran, “and especially important for new listings.”

That’s because the majority of showing activity happens within the first 21 days of the listing. “If you have a listing with no activity for three weeks, the market is speaking to you,” Corcoran says. “Your listing is overpriced compared to the competition that’s on the market”

One way to avoid either of these scenarios is to talk to sellers about prospective price reductions upfront, during the listing appointment, says Corcoran, and review pricing on every listing every seven days. Avoid “beating the seller up about price,” he cautions, noting that his own consumer panels show that many homeowners feel victimized by this practice.

“Talk to sellers about what you’re doing, about market statistics and about the positive activity that’s taking place,” says Corcoran, “instead of just focusing on the negative.” Use a seller interview
sheet, he suggests, and use it to note important nuggets like length of time that they’ve been in the home, what they paid for it, how much their mortgage is, what makes them want to sell now, acceptable selling price, and so forth. “Remember that while pricing is a key part of your job,” says Corcoran, “it’s also your job to figure out where the seller is mentally.”

More Strategies

At Realty Executives Elite in Lemont, broker-manager Christine Wilczek never goes into a listing appointment unprepared. In real estate for 13 years,Wilczek also brings a complete market analysis
(which includes current comparable listings, recent sales and absorption rates), statistical research on current market conditions andmarket inventory levels. “The more data you can come in with, the stronger you’ll be in terms of price positioning,” she says. 

“My binder is usually about an inch thick, and even includes real estate articles pertaining to our market and the industry as a whole,” says Wilczek, “all to show sellers in black and white what the challenges are, and what they’re up against.” 

When working with resistant sellers, Wilczek incorporates automatic price reduction schedules as addendums to her listing agreements, and uses them when showing activity wanes within the specified time frames (usually with one or two weeks between each reduction). “That way, they tried their unrealistic number,” says Wilczek, “and I don’t have to hound them for price reductions.”

IAR Convention and GRI speaker Kim Daugherty says agents who devote the majority of their listing presentations to pricing often wind up with the most realistic sellers. “I have one top producer who spends 45 minutes on price, and 15 minutes on the rest,” says Daugherty, director of training and education for Coldwell Banker Gundaker in St. Louis, Mo.

Before that educational session even starts,Daugherty says agents should take a step back and determine whether the sellers are “sufficiently motivated to successfully participate in the current market.” Ask yourself questions like:
• Do they have enough need or desire to sell right now?
• Will the market realities make sense to them?
• Are they open-minded and realistic, or are they determined to get the price that they think they should get for their home?

If the answers point to an unmotivated seller, Daugherty suggests asking questions like these:
• Why do you want or need to move?
• Within what time frame do you want to move?
• If you couldn’t get the price you want, would you be willing to adjust your price, or do you see yourself waiting until the market—in your mind—is more favorable? 

Once you get the answers, Daugherty says you should be able to ascertain whether the “partnership will serve any purpose, and if the [listing] is worth your time and effort.”

Naseem El-Barbarawi, a REALTOR® with Keller Williams Gold Coast REALTORS® in Chicago, uses a methodic pricing approach when working with his high-end clients. He calls it the
“Four Quadrant CMA” and says the strategy—which was implemented in answer to the current pricing trends—goes a long way in helping sellers get a grip on market realities. “It’s no longer enough to just go in there with comparables,” says El-Barbarawi. 

“You have to prove things on paper, and help sellers interpret market data.” El-Barbarawi says the report’s appreciation analysis tends to garner the most attention from sellers, who can see on paper exactly how much their homes have (or haven’t) appreciated over the last few years. He says that the four-part report takes time to assemble, but adds that the extra effort pays off when sellers come away with a better understanding of the market’s current dynamics. 

“The sellers can see that I’ve done my homework,” says El-Barbarawi. “By interpreting the information for them in advance, our sellers get a good grasp on where they stand. Then it’s easier
for me to get the right pricing at the outset, instead of asking for price reduction after price reduction, or end up with an expired listing.”

El-Barbarawi’s Four Quadrant CMA includes:
1) Detailed appreciation analysis (to demonstrate the value fluctuations over the years, and based on the S&P/Case-Shiller Home Price Indices)
2) Supply and demand analysis (to illustrate consumer demand for specific types of luxury homes and condos)
3) Area averages (to show statistics like three-month median sales prices, median list prices, and so forth)
4) Area comparables (for the prior six months)

Dealing with the Daily Frustration

Sometimes all of themarket data in the world can’t convince a seller that his or her home is worth less than it was five years ago.What’s an agent to do?

• Prepare to stay ahead of the pack. El-Barbarawi says he turns to his Agent Leadership Council’s five-member board (of which is he is a board member) for support,all the while keeping the impending market turnaround in mind.“By staying educated,going to training classes, teaching training classes and implementing new techniques,”he says,“I know I am building a strong foundation now so when the market does turn, I will be ahead of the pack.”
• Ignore negative media reports. Wilczek says she maintains a positive attitude,despite the challenges. “The bottom line is that inventory levels are at historic highs right now,but guess what? Interest rates are at historic lows, and properties are still selling.You can be negative about it or positive about it,and I choose the latter because over time, real estate is still the most sound investment out there.”
• Get help from your broker. “I’m a people pleaser,but it’s hard to play that role when someone is telling you that her home is worth tens of thousands of dollars more than the market will bear,” says Wille,who has sat down for faceto-face meetings with her broker to discuss the realities of the market,and how to deal with such issues in an efficient manner. She says referrals also help her to realize that she’s “still helping people,even if I’m not always getting them the price that they want.”

7 Tips For Managing Seller Expectations

• Don’t take any listings that are totally out of the ballpark, pricewise. 
• Educate your sellers on the fine points of the current market, including how many homes are listed for sale, how long they’ve been on the market, how many price reductions they’ve experienced, and other valuable pieces of information. 
• Take the focus off the“price”by highlighting the home’s value, and the strategies that you and the sellers will use to get it sold. 
• During the listing period, stay in close contact (via phone,e-mail, mail and in person) with the sellers, letting them know about any activity that’s taken place (or, the lack thereof) and feedback you’re hearing from buyers and agents. 
• Know the markets that you’re working in. If someone says “Well, this guy just got $675,000 for his home”and you know that the price was more like $575,000,be able to recite the accurate figures off the top of your head (this information is attainable from the MLS,and from other agents working in the area). 
• If the home doesn’t sell within the expected time frame,consider upping its curb appeal and/or staging the interior to make it more appealing.Oftentimes a seller will get a significant return on investment for taking steps to make the home more attractive on the inside and out.
• When pricing,don’t just look at closed sales. Instead, look at the current competition on the market. For an effective reality check, invite the seller to visit those other homes by driving by,or even going inside.

About the Author: Bridget McCrea is a business, real estate and technology writer in Clearwater, Fla. She can be reached at bridgetmc@earthlink.net.