Underselling--and what to do about it - Posted by Kristine-CA

import · September 22, 2003, 3:37pm

Posted by David Krulac on September 24, 2003 at 06:23:53:

doesn’t work in many areas or markets. Generally only works in high inflation/appreciating markets.

Too high pricing is probably the single reason most properties don’t sell. High pricing will also lenghten your days on the market.

Pricing is a tricky part of the business and many agents and most fsboS don’t have a clue.

“The house across the street sold for $100,000, so I want $125,000.” This “logic” doesn’t even say that his house is worth more. Once an owner told me that he wanted more for his house because his neighbor was a disagreeable person and couldn’t get along with anybody. Therefore since he was such a nice guy you should pay more to buy his house?

The two major components of pricing are 1. analyzing and getting good comps and 2. price point pricing.

#1 takes practice and can be a developed skill. Its basically what appraisers do. You want recent actual sales within the last 6 months of as similar properties as possible, as close as possible to the subject. If you’re working in a subdivision with 300 houses that has only 3 different models, this shouldn’t be too hard. If the house is unusual or drastically different, then this is more difficult.
But the more you do comp work and the better you know your area the better you will be.

I knew an appraiser that worked for a relo company and they would fire you if your appraisals weren’t within 5% of the actual sale price. That’s hard to do day in and day out, but you had to do it if you wanted to keep your job.

Secondly gasoline priced at 153.9 and cars priced at $9998 are examples of price point pricing. A Ford Focus at $9998 sounds cheaper than a $10,000 price.
I once priced a house at $99,990 to stay below $100,000. I’ve never priced a house at $101,000 or $102,000. Buyers think in terms of round numbers. They don’t want to spend more than $100,000, or $130,000 or $200,000 or what ever the number is. If you’re before that threshold, you’ll get noticed. If you’re above their threshold, they you’re off their radar screen. This is even more important if your property is listed. The buyer tells the agent they want to spent less than $100,000, the agent does a computer search of less than $100,000 and your $101,000 house doesn’t make the cut of eligible candidate homes.

Personally I’d rather sell slightly below market and have quick sales that sqeaze the last nickle and take a long time to do it.

David Krulac
Central Pennsylvania

import · September 22, 2003, 3:37pm

Underselling–and what to do about it - Posted by Kristine-CA

Posted by Kristine-CA on September 22, 2003 at 15:37:49:

Greetings all. I am having a problem when selling. After I get properties under contract or when I’m ready to sell, I find that I have this anxiety that makes me underprice the properties to get them sold asap. I have one where I bought for $28.5K. It’s a duplex with good cash flow. Needs a few repairs to get better rents. I offered it to one of my rehab buyers for $37K and he took it in a heartbeat with no counter offer for his own rental portfolio.

I thought that was nice. But weeks later I’m calmer and less anxious. And angry with myself for always underselling. Comparables for duplexes with similar rents are between 55-70. I could have used hard money that is available to me to close on it myself and clean it up, put better tenants in it and package it for some of the out-of-town investors that require minimal positive cash flow. As it is now, I’ve already had to make deals with both tenants and will be paying to clean-up after them before I deliver it anyway.

One of things that makes me anxious is that I usually like to double close on these without my own cash. I’m usually worried that I could lose the deal somehow. Which is pretty ridiculous because the sellers I work are usually so relieved to have the properties in escrow and to have me dealing with the tenants, the county, the neighbors, etc.

The thing that is concerning me is that this problem doesn’t seem to be getting better. I always shy away from asking for maximum value.

Any suggestions? Sincerely, Kristine

import · September 23, 2003, 10:40am

Re: Underselling–and what to do about it - Posted by Kevin IL

Posted by Kevin IL on September 23, 2003 at 10:40:56:

Hi Kristine!

this isn’t the worst problem to have! here are a couple thoughts.

calculate your “quick sale” price like you have in the past…now add 10-15% on and see what happens. There’s no doubt you know your market, now stand by this price with CONFIDENCE.
create competition - take your 5 best cash buyers and present the property to ONLY them at a slight premium over wholesale. Give them one week to make an offer. Let them know that after one week you’ll open it up for offers to all your buyers. If no takers, lower your price and start over.

Happy selling!

import · September 22, 2003, 9:56pm

Re: Underselling–and what to do about it - Posted by gwtx

Posted by gwtx on September 22, 2003 at 21:56:22:

Hi Kristine,

You have got some good help (as always) from below.

I’m sure you already know this…being the seasoned flipper pro you are now.

When you buy you should always have several exit strategies mapped out as your buying.
-ask retail…you may have to hold the property a bit longer to get your full asking price,
-ask wholesale…you will get rid of the property faster, but with less profit.

Have you considered this…wholesale a property to a retail buyer? (Again, I’m sure you have.) Find out the Fair Market Value, but, rather than discount it for 60-70% FMV to an investor…just discount it for 80% to a regular retail buyer. Market it as a fixer at 80% market.

You get a QUICK sale, you get more profit than selling to an investor and you’re not kicking yourself for losing an extra nickle or two.

And, if it doesn’t sell in 1-2 weeks just flip it to one of your regular investors on your buyers list.

Hope this Helps

gary

import · September 22, 2003, 9:21pm

Re: Underselling–and what to do about it - Posted by Ronald * Starr(in No CA)

Posted by Ronald * Starr(in No CA) on September 22, 2003 at 21:21:24:

Kristine–(CA)-----------------

I wonder if you should fire the person who has been setting the selling prices for you?

I’d recommend that you call up about a half-dozen real estate agents and explain that you have a property in a situation where you can sell it on the open market. Ask them to come over individually on 1-hour headway to give their considered opinion of what it will sell for.

Then use that information in setting a price.

Good InvestingRon Starr*

import · September 22, 2003, 8:42pm

Re: Underselling–and what to do about it - Posted by frankCA

Posted by frankCA on September 22, 2003 at 20:42:53:

I see nothing wrong with your healthy attitude of “Get done and move on!” Of course you are not in the charity business and shouldn’t give it away. Perhaps your confidence will be boosted if you can market so that you have more than one buyer considering your deal. You won’t feel you have to bargain price everything. Have you tried VRM (Variable Range Marketing) I confess that I haven’t tried it but people whose opinion I respect say it’s the only way. Keep us posted.

import · September 24, 2003, 1:20am

Re: Underselling–and what to do about it - Posted by Kristine-CA

Posted by Kristine-CA on September 24, 2003 at 01:20:50:

Dear Ron Starr: I would fire myself as I am the person setting my selling prices, but I am totally co-dependent and can’t do the tough-love thing.

Interesting point about consulting with agents. But I’ve gotta tell you I’ve developed a real allergy to agents in Bakersfield. Most agents will tell a seller just about anything to get a listing. I feel like one of the reasons I do alright in the big B is because I do better work on both the selling and buying than most agents.

I can sell anything, really. But I’d like to get…what would be a good word…shrewder, I think, on the selling prices. And there is a lot about the negotiation game that doesn’t seem to apply here. For example, setting a high price in some areas invites lower counter offers. Here it results in no offers.

So, I’m a little confused about how high to go when it comes to asking prices.

Thanks for your suggestion. Sincerely, Kristine

import · September 24, 2003, 1:09am