| Never Reduce Your Sales Price! Increase Your Content! |
We RARELY reduce our sales price, and often raise them on slow moving properties. That
makes no sense does it? Actually it does!
We had a letter from a student recently who was having trouble selling a property. He had
the property listed with a Realtor, who was now insisting that the price should be reduced $10,000.
The student said that he would still make money at the lower price, but that it would mean the
difference in trading his old car for a brand new sparkly one, or a slightly less ugly used car.
The student asked what I thought, and I responded as follows:
People typically shop for houses by the monthly payment they can afford. In other words,
if they are comfortable making a $1,200 per month payment for their home, the mortgage broker or
Realtor tells them what they can afford in terms of price at prevailing interest rates.
People thus want to get the most they can for their $1,200 or whatever their magic payment
number happens to be. Reducing the price by $10,000 is going to be less than $100 per month in terms
of payment. No Buyer is going to say, "Well, I wouldn’t pay $1,200 per month for that house, but
sign me up NOW for $1,160!!!" You are not likely to move into a whole new group of buyers by
reducing your price that much. You may catch one or two potential folks who can afford $1,160 on
their top end, but you are not going to open the floodgates by any stretch of the imagination. If you
cut the price $60,000, you would get more buyers in who could not afford the higher price, but such a
cut is not likely if you want to avoid losing money on this deal.
Thus cutting price is not an effective solution, as you are really not going to be able
to cut the price ENOUGH to get a great deal of additional buyers in to look at the house and get a
sale. The realtor is grasping for straws, and cutting price is the only way that they can think of
to sell homes for the most part.
What I do, and we do cover this in the course, is boost content. I want to give them
more with the house than I gave originally. I can spend a few extra thousand and greatly increase
the wow factor of the house, and get people excited. People buy houses on emotion, and then seek to
rationalize their decision with logic, payment tables, and statements on how great of an
"investment" the home will make.
The most common thing that we have done is add a deck onto the back of the house. This
ALWAYS has worked for us when we could not get a house to sell. Typically we will get an offer
within 2 weeks when we have added the deck. I have even increased the cost to cover the cost of the
deck. Even if I don’t raise the price, do you see how spending $2,500 on a deck and keeping the
same asking price (which effectively is equal to a $2,500 price cut) is superior to a $10,000 price
cut, or even a $15,000 price cut? A big new deck will excite people much more than a $60 monthly
savings any day. People think that decks are much more valuable than they are in terms of our costs
to build them. We received a quote recently of $1,200 plus materials for a deck on a house.
Other ideas are picket fences for homes with small front yards, landscaping and/or sod,
security system and appliances, add crown molding or wainscoting to key rooms such as the living and
dining room. You can also include a home warranty with the home if the systems or plumbing are old
(get the Realtor to agree to pay half). Accessorize the bathrooms with guest towels, pretty soaps,
and candles (not lit) to create more mood. Add new carpet if the old carpet is looking ugly, or paint
if you were trying to sell the house without repainting. Refinishing hardwood floors also can help.
We have been caught in the partial mini-rehab spiral a couple of times. Sometimes we like
to get in and do minor work to clean it up and sell without much of a fix-up. This is a great
strategy that I still endorse. We get more than we would by wholesaling to another investor, and can
often sell directly to a homeowner/owner-occupant. We get in and out quickly. However, sometimes we
don’t do enough, or a house just can't sell unless it looks really pretty. We have pulled such
properties from the market, done some more fix up (especially with paint and whatever we can do for
the least cost), and put it back on the market. This typically is enough to get them to sell. A
minimal investment of a few more thousand trumps a radical price cut.
Thus in short, do not cut price if you have done your market research and feel that the
price you are asking is really fair. Spend a little more and glitz up what you already have. Decks
are the best return on the dollar in my market. We generally go for 14x16 if there is space.
Realtors love to cut prices out of panic. As investors, we have to keep a level head and go in and
figure out what has to be done to add some "sizzle to the steak."
David Whisnant is a licensed real estate attorney in Georgia. He received his B.A. from
the University of North Carolina at Chapel Hill, and graduated from Law School at The University of Georgia
School of Law in Athens, Georgia. He is author of the
"The Complete Real Estate Investor
Program"
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Website: www.4realestateinvesting.com
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