Lowball Pricing Strategy Stirs Demand
A real estate pro in West Hollywood uses a savvy pricing technique to get a messy home sold.
July 1, 2009
Location: Los Feliz section of Los Angeles
Square footage: 1,748
Lot size (square footage): 8,276
Year built: 1954
Extras: Room to expand up or out, great location, open floor plan, vaulted ceilings, and lots of built-ins.
THE CHALLENGE: When Michael Tunick, SRES®, a sales practitioner with Sotheby's International Realty—Sunset Strip Brokerage in West Hollywood, got this challenging listing in July 2008, fear of the real estate marketplace was rampant among buyers.
“The buyers' biggest fear was that their house would be worth 10 percent less than six months after the initial purchase,” he says.
But the challenging marketplace wasn't the only hitch Tunick faced.
“The home was stuffed to the gills with trinkets," he says. "It looked like the owner—a retired insurance claims adjuster who moved to Florida a decade earlier and stayed in the home two or three times a year—hadn’t thrown anything away in 44 years. The home had loads of deferred maintenance."
So how did you overcome the challenges?
TUNICK: To address the mess, I told the owner everything had to come out of the house. And for a guy who wasn’t inclined to thrown anything away, he turned out to be a dream client and took my guidance every step of the way as far as getting ready for sale and pricing. I kept it simple. I hired a painter and cleaning crew, and called it a day.
To deal with the psychological dynamic of fear, I got the seller to agree to price the property a little below market value and positioned it as a fixer-upper at $799,000. Traditionally, when you’re selling a car or a home, you start with the high price and come down. But these days, that approach is a guaranteed ticket that you will be chasing the market.
I learned this the hard way in Fall 2007, when I priced a listing over market because the client overpaid for the home. I held an open house every Sunday for almost nine months, which is how long it took to sell the house, and I got to meet a lot of buyers. The demand was there. People were kicking the tires but too afraid to make a decision.
To take that fear off the table, we priced the Los Feliz home below market.
If you do this, people feel like they can’t afford not to write an offer because they see other people writing offers. You take fear off the table, and people get drawn into the emotion of buying a home again. You couldn’t employ this strategy if the demand wasn’t out there.
How long did the sale take?
TUNICK: I got the listing in July 2008. It sold Oct. 8, 2008, for $855,000, which was the second highest offer. I also got the buyer to pay for all retro-fitting and termite work—another $5,000 savings to my seller.
Why did the seller take the lower offer?
TUNICK: The seller took the lower offer because he liked a letter of introduction the buyer wrote. Most of the prospective buyers included a letter of introduction with their offer. My seller was impressed by this buyer’s avocation—he was a college professor—and the emotion of the letter. The higher bidder had an event-marketing company, and the seller thought his letter came across as a little too slick.
How did you get the initial listing?
TUNICK: I have sold five homes on that street. The seller had come to an open house in 2004 and told me he was going to want to sell at some point. He procrastinated about cleaning out the house [for] four years. But I stayed in touch, and he stayed loyal.
How much did you spend marketing the property?
TUNICK: I spent $934. I ran print ads in the Saturday and Sunday Los Angeles Times. I mentioned it in the corporate ad my company runs in the Hollywood Reporter every Friday. I also did extensive advertising on Sotheby’s Web site, my personal Web site, REALTOR.com, and about a dozen other sites. I did a direct-mail campaign that listed the open house and sent those mailers to 200 of the closest neighbors to the property. [I] did two e-mail blasts—one to my personal sphere of current and past friend and relatives and another to the 700-plus Sotheby agents—announcing the new listing and first Sunday open house. Our seven offices are hooked up to each other electronically, so I can send one e-mail to all our agents and offices. We move a lot of property in-house that way.
How many times did you show the property?
TUNICK: I held one Sunday open house and a Tuesday broker’s open. In addition, I had about 20 showings by appointment from Sunday to Thursday.
Tell us about the buyer.
TUNICK: He was represented by an agent in my office, which was another reason we decided to go with his offer: We knew and trusted the sales practitioner. I also had worked with the buyer’s lender and knew the loan would not be a problem.
What was the key to closing the deal?
TUNICK: It was a combination of aggressive marketing and intelligent pricing.
What lessons did you learn from this transaction?
TUNICK: A deal can be won and lost on a letter of introduction from a buyer to a seller. I often remind my clients to do this and then I help polish the letters for them.
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