How Far Down Have You Had to Lower Your Price?

Question

Because many fix and flip real estate investors are up against the clock, many times they have to lower the price to sell the property quickly. I knew one flipper that believed so strongly in his ARV (after repair value), that he didn't lower the price until it was too late. He ended up getting the house taken back by the hard money lender who lent him money on it for 5 months. If he only would have lowered his price sooner, he may have avoided catastrophe. (And, this is too short of a loan anyway in my opinion)

How many times have you had to reduce a price on a property you were trying to flip quickly? What strategy for pricing would you share from your own experience?

Bill Gulley · Answer

J. Scott has a good point, as usual, and his 95% of the asking price tells me somthing else.....

Pricing the property right for the current market conditions is key and it appears he does that.

If it's priced right to begin with you shouldn't have to reduce prices, but there are times when you won't know, as the #1 above, try to get in tune with the market and if you need to sell, don't hang on, drop it and move it.

I have never done this but another method I've seen in my area is a dropping price type listing where they say the price will be dropped by XXX dollars a week until gone. I thought they must be desprate and wondered if they just low ball offers. After talking to the agent she has been successful at it, simply rejecting any low balls. Pretty soon buyers get edgy wondering if they will get it or not and they move on it. Nothing is accepted immediately. When they have multiple offers then that best and final is used to get the price back up.

I'm not a fan of the best offer ploy, but seems to work....

I suggest just pricing it right.

J Scott · Answer

We've gotten pretty lucky (and my wife is awesome at pricing/selling) such that our average sale price is 95.5% of of our *ORIGINAL* list price (over 97% of our final list price).  So, having a great agent who can price right goes a long way towards getting things sold quickly and for the maximum price.

Now, when a property doesn't sell quickly (and it happens about 20% of the time for us), you have to figure out why that's the case.  Generally, I find that it's one (or more) of three things:

1. Are there fewer buyers out there at the moment?
2. Are there a glut of competing houses?
3. Is the house over-priced?

If it's #1, then usually dropping the price isn't going to help much, unless you drop it into a different price range (or if there are competing houses in your price range that are nicer than yours, which there shouldn't be!).

If it's #2, then it's better to pre-plan for this and ensure that your house is nicer than your competition.  If you can't do this, then dropping the price is a good option.

If it's #3 (which you can generally tell if you're not getting much activity and/or buyers are telling you this), a quick drop in price is warranted.

We'll occasionally list high just to see what kind of response we get.  Sometimes it works in our favor (we get an offer anyway) and sometimes we need to drop the price quickly.  Don't ever be scared to drop the price -- it's not a sign of weakness, it's a sign of a smart business-person...

Corey Dutton · Answer

It's important for a flipper to work with an agent that really understands the pricing element, if he/she is not already an agent.