(RE)Pricing and the Art of Price Reductions.

"If my competitors didn't overprice, I'd win the listing." Frankly, you give too much credit to your competitors. Maybe they don't know what they're doing. Rather than focus on them, let's focus on what you're doing.

We live in a world that our questions create. Pricing: is it an art or a science? No two properties are identically the same. The buyer's urgency, market conditions of the day, the cost of money, and the market's mood all play into the art and science of pricing.

So, how does pricing work? And what do you do when it comes to a price reduction?

A registered valuer uses three specific valuation methodologies:

Replacement cost

What does it cost to purchase the land, build the structure and add any additional improvements, less depreciation over time (i.e. it's now new or to current trends)?

Rental return

Used on investment grade listings and predominantly in commercial. What's the annual return on the property and current capitalisation rate investors are using? i.e. $50,000 a year in rent, on a 5% cap rate, makes the asset worth $1,000,000.

Recent sales

What's just been sold that relates to the subject property. There's a price per square meter of land, and for buildings and improvements.

Then there are supply levels

How unique is the offering? Is there an irrational price that someone is prepared to pay because the asset is rare and irreplaceable?

Owners pricing

What did the home cost them, plus what did they spend on it, and what do they need in order to sell and move?

Agents pricing

This varies widely based on market knowledge.

And buyer's pricing

Buyers go to open homes, look at recent sales, and assess demand, such as the number of buyers at an open house and bidders at an auction. One buyer may value the property at a much higher price, as they own the neighbouring property and have the highest and best use for re-developing or co-joining the assets.

Every time there's a new listing on the market, how does that listing impact the current listing I have on the market?

Let's assume you have a guide of $1m, and a neighbouring property of a similar type comes to the market at $950,000, but it has an additional car space. That new offering at $950,000 is more sharply priced and will attract more buyers in the market.

Assume there's been a sale in the last 24 hours. If that buyer was your only buyer and your auction is this week, you're in serious trouble. If the buyer also inspected your listing but bought elsewhere, your listing helped them to see value somewhere else. Overpriced property helps other properties to sell.

If the one that's just sold for $930,000 after an initial quote of $950,000, then your $1m listing is in serious trouble.

Markets are dynamic and influenced by the media, government policy, the cost of money (interest rates), the mood of the market, new supply (building), etc.

The skill of any great agent is to keep their sellers up to date throughout the campaign.

Stay Ahead of Conditions by Assessing Demand

During a campaign, there are some simple indicators of interest:

Days on the market - The measurement from the day the property was launched on the portals to today. The longer a property stays on the market, the more likely it is to sell at some level of a discount.

Enquiry - You can tell based on the number of emails, SMS, and phone enquiries you receive on a property as to whether there's going to be a great open or if the guide is attracting buyer interest.

Inspections - If there's a great enquiry, that should lead to inspections. Inspections are great as you're now meeting buyers who are keen to purchase and who will provide valuable feedback during the campaign.

2nd Inspections - Those inspections must lead to second inspections. If buyers don't return, they don't see value. If they do, expect that to move quickly into negotiations.

Pest and building reports - Buyers who purchase pest, building and strata reports show digital intent to proceed.

Offers - A great part of the sales campaign and a strong indicator that pricing has hit the mark.

Registrations are needed to bid at the auction, and bidding is the final sign in an auction campaign that everything is on track.

The skill is to manage a campaign logically as opposed to emotionally. By day 9, expect to have a second appointment, and by day 14, make sure you've got a positioning offer. If you don't have either, you need to change pricing quickly.

You already know if a campaign is off track. As soon as you see the owner's name calling you and you don't want to take the call, that's when you know your campaign is in trouble.

Driving Demand

Great agents bring buyers to the photo shoot. When you bring your best 2-3 buyers at the time of photos, you get great price feedback before you set the market price.

Launch your new listing on a Tuesday; that way, urgent buyers who search the portals each day see the new listing and attend the first open home - which is your mid-week open house. Every property you take to market should have a mid-week open in the first week on either Wednesday or Thursday.

That way, by the time you get to your Saturday open house, you'll already have buyers coming back for a second inspection at your first Saturday open house.

Make sure you have a tape measure available at every inspection or open house. If a buyer sees another buyer measure the fridge space, that drives a sense of urgency in having to act.

Go Beyond the Marketing

Most agents expect the marketing to do the heavy lifting. Know who the best buyers are in the market. Think, anyone who has bid, made an offer, come back for second inspection, bought a copy of a pest and building report on a previous campaign, or sold their home last weekend. Think, a seller who just sold is the hottest buyer if they need to buy, given their sale, so they don't have to move twice, aligning settlement dates.

Imagine that. How much better would you need to be at the open house to find out if the property held an interest for the buyer? The skill is to make sure you cut to the chase with great dialogue.

Let's look at five questions to drive better open-home callback intent:

Hi Hannah, it's Josh Phegan calling. You inspected 1 Smith St on the weekend; would you like to see it again?

If No:

Is it the property or the price?

If it's the price:

What would it need to be for you to buy it?

If Yes:

I can do something tomorrow. Would 2 pm or 4 pm work best?

Have you bought locally before?

If Yes:

What are your plans with the existing when you buy the next?

Any chance I can come and see it?

In five questions, you've got a buyer appointment, a market appraisal that could turn into a listing, and an offer coming in. Most don't cut to the chase and, even worse, push buyers to an open house time.

When a buyer is in the mood, when they are keen, don't push them to an open; instead, book them in for a buyer appointment tomorrow. Turn that buyer appointment time into a 15-minute open home online. That way, any buyer who's following the property on the major real estate portals will be notified and may attend the open.

If you have to push a buyer to an open time - i.e. limited access due to a tenant in play - ask the buyer for permission to send them a calendar invite. That way, if the buyer doesn't turn up at an open, you can call them on Monday.

Hi Hannah, it's Josh Phegan calling. I noticed you didn't get a chance to get through 1 Smith Street on Saturday. Is there any chance I can get you through this week?

Better Buyer Transfers

On any campaign you'll meet 20 buyers. One buys. If you have a hot auction or a strong for-sale campaign, there will be two additional buyers who have made an offer or bid. That means you have two buyers ready to buy $1m assets. Now, your job is to find $2m worth of assets for them to buy.

The Rise of 40:40

When you list a property, you have a sales file checklist.

- Order the contract.

- Order the photos.

- Order the video.

Now, I want you to search for 20 market appraisals of a similar type.

Call them.

Hi Hannah, it's Josh Phegan calling. The reason for my call today is we've just listed 1 Smith St. It's similar to yours. It launches next week, and we expect it will sell in the next few weeks. When it does, I'll give you a quick call and ask for instructions on what you'd like to do with yours.

Then, when it sells -

Hi Hannah, it's Josh Phegan calling. The reason for my call is 1 Smith St just sold. It sold for $1m. We had two buyers who have missed out. What would it take to get them through yours? Would you prevent me from bringing a great buyer through if they paid a great price? And what would that price need to be?

Then, we call 20 appraisals of an aspirational type.

Hi Hannah, it's Josh Phegan calling. The reason for my call is that we've just listed 1 Smith St, and it's the perfect upgrade for someone like you. Is there any chance I can get you to come and see it?

Then, when it sells -

Hi Hannah, it's Josh Phegan calling. The reason for my call is we've just sold 1 Smith St. It made $1m. So, given the market value of yours, you'd need $250,000 to upgrade into something like that.

Imagine if the three-bedder seller sees the four bedders, and likes it, then they have to sell their three bedders, and that's how you do pipeline progression.

If a price point is blocked - i.e. there's no buyers - then selling the seller in the price point before is the perfect way to unlock buyers in the next price range.

Evolution of Just Sold Marketing

More active buyer transfers changes the way you do buyer work. 1 Smith Street has now sold; if you missed out on that one, consider 1 Yellow Street.

And that's why we do the 40:40; to find sellers (past market appraisals and past clients) whose property we can launch the moment we sell our existing campaign, to transfer the buyers to, and to unlock opportunity in our previous appraisals in the price points before and turn them into sellers.

The Gritty End of Negotiation

What did they pay?

Let's assume a seller is on the market for $1.4 million. You have an offer of $1.35 million, so what do you do next?

If the seller purchased the asset for $1m, they currently have a $350,000 gain. That's a 35% increase in their sale price. Whether they make a 35% or 40% gain, it's still a great gain. That's really important, as we are unlikely to return to the free money era of interest rates.

Think in Percentages

The distance between the $1.4m and $1.35m is $50,000. $50,000 over $1.35m = 3.7%. So the seller has achieved 96.3% of what they wanted.

No Offer in Isolation

If you present the $1.35m, it's unlikely to get up.

In every negotiation, there are three parties: the seller, the buyer and the next buyer.

If you present two offers, one at $1.3m and then one at $1.35m, the second offer is much more likely to get up.

Learn to negotiate the extra $50,000.

Assume $10 per month for every extra $5,000 the buyer needs to borrow. The difference of $50,000 on the loan is $100 a week. So for a dinner for two or a tank of fuel, you can own the home you want.

Seven words.

Three questions.

Why this one?

Why else?

Why now?

Why this one? It has no stairs, which is important for my knees.

Why else? My mother-in-law is in the street, which is a built-in babysitter for us.

Why now? We sold last weekend on a 60-day settlement, so we have 30 days to buy something with a 30-day settlement.

Now, you have leverage in the negotiation. Most agents never ask, and therefore never know.

Three Options

How do you present in such a way that people can understand what you're saying and accept it?

There are three options:

Option 1

Option 2

Or maybe there's a third option that I'm just not seeing; what are your thoughts?

Be Real and Accept Your Fate

If you've done everything you promised, if the marketing has been flawless, if you've called your seller every business day, if you've provided great vendor feedback reports, then a price reduction shouldn't be difficult.

My concern is that the market just isn't responding, and we need to sharpen our price point to attract the buyers so I can do my job to negotiate those buyers up.

And that's the secret. Prices are fluid. In Melbourne, Victoria, every property must have a price, better known as a Statement of Information. In Sydney, NSW, you can have no price, a fixed price or a price within a 10% range. In Brisbane, QLD, any property going to auction can't have a price guide. Melbourne has the highest volume of auctions.

It doesn't matter what the legislation is, what matters is you learn how to play within the rules you've been given and act decisively when things are off track.