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The Dreaded Price Cut Discussion | 3 Tips to Help Posted by Noah Rosenblatt in Current Events

Real estate agents everywhere know all too well the challenges of this tricky situation. Your mind starts veering to dark, dreary places wandering how the seller will react. You knew the price was high to begin with but hey, its a new listing right! If a property is not selling in the open market its most likely due to one of three things: either its a market problem, a product problem, or a price problem. Most of the time its a price problem. Here are three ways to use data to have a conversation with your client about reducing the price.

A Market Problem: examples would include 2008-2009 and then again from early 2015 into late 2016 as two examples of a market problem

A Product Problem: think of a dark, low floor apartment that needs a full renovation. Any combination of these types of attributes are always difficult sells

A Price Problem: when the market (the buyers/bids) dictates that your price is too high via low viewing traffic, minimal inquiries, and zero bids. Days on market will rise, the listing will become stale, and buyers will naturally come to the conclusion that the asking price is probably too high. Buyers dictate the value of property, not sellers or their brokers.

If an apartment is not selling these three questions should be the first place to look when formulating a strategy for an upcoming client conversation. Ideally this conversation happens at the initial pitch meeting so you can manage client expectations from the beginning. The goal of this conversation is to expedite the transaction via a price reduction.

Here are three charts that will act as ammo in your arsenal to achieve results.

Days on Market (1st Line of Attack)

All sellers should have an understanding of days on market for their submarket. Put simply, this number will show you whether leverage has been shifting towards buyers or sellers as well as guide you as to what point it is time to have a price cut discussion in the listing process.

Here is an example of days on market in the Chelsea Condo sector (you can further fine tune these filters for Beds & Price Range):

Conversation: “The Chelsea 2-Bed Condo sector has a median Days on Market of 71 which is noticeably higher than where it was back in 2014-2015. This will act as a guide for us during the listing process. Should we remain on the market as we pass Day 71, that will be the market’s first clear message that we should reconsider our pricing strategy and discuss a reduction.”

Absorption Rate (2nd Line of Attack)

Absorption rate tells you at the current pace of sales how many months it will take to absorb local supply. The lower the #, the stronger the market and the more leverage sellers have. The higher the #, the weaker the market and the more leverage buyers have. Here is Absorption rate trend for the same Chelsea Condo market (taken from our upcoming site, sorry no link):

Conversation: “We can validate the shift in the market from the peak years of 2014/2015 by looking at this sales based Absorption rate chart. As you can see, we are selling in a marketplace with weaker dynamics in play than a few years ago as buyers have become more price conscious and bidding less aggressively.”

Supply (3rd line of Attack)

Not as convincing an argument, but important nonetheless. It’s always good for a seller to understand the changing inventory of the local competition and whether that trend is favoring sellers or buyers. Here is local Supply trend for the same Chelsea Condo market:

Conversation: “The pool of competition that we are up against has been rising. Taking into account seasonality and peak listing season, we need to be aware that buyers have more options to choose from in our submarket today than they did in years past. We should be cognizant of competing properties throughout the listing process.”

Final Thoughts

Setting sell-side pricing & days on market expectations should be JOB #1 in the first conversations with a new seller client. Waiting to have this discussion and/or appeasing to sell side fantasies on pricing serves nobody and puts you in a weaker position to argue for a price cut when you surpass your local markets DOM stat. There is a far greater chance of success if you walk into that listing pitch confident, clear of your goals and armed with relevant hyper-local information so that you can openly discuss the true nature of the submarket that your client is trying to sell in. Go in knowing your comps, when they sold, how they differ in views and condition and justify a pricing strategy. In the end, they will respect you more for it and your client will be better served.