Strategies for selling into a down market

Real estate cycle timing is hard to predict in my region, however, the cause of the cycle is easy to understand.  Our real estate market is mainly driven by in-migration and the oil price based economic outlook.

As you can imagine, 2015 was a brutal year for oil (and real estate), and 2016 could be even worse. As a new builder, every offer is priceless in a down market, and every strategy to make a deal has to be deployed with enhanced vigour compared to in a vibrant market where the offers come easily.

Our strategies to make deals on a newly built three unit townhouse were multi-faceted and largely worked.  I will break down the tactics we used in point form, below;

1.  Pricing - this is critical to get it right.  In a down market, your competition is likely priced high, especially if it hasn't been moving.  If your product is similar, you can get a real jump on the competition by listing a meaningful amount lower than the nearest competitor.

2.  Uniqueness - the over supplied product tends to be similar to other competitors and does little to attract the buyer attention.  We made our product just a little bit nicer than the competition, whether this is a better grade of hardwood, or nicer closet built-ins, it is easy to distinguish yourself from your competition in newly built product.  Buyers that have many options will be drawn to the nicer product that stands out from the stale listings.

3.  Willingness to work with sub-par offers - we received an offer dependent on the buyer selling her own property first.  Normally we wouldn't look favourably upon such an offer, however we signed this deal for two reasons.  First, it takes one valuable buyer out of the market, once she writes an accepted offer for a new product, she will no longer be out there looking at your competitors product.  Secondly, we structured the deal such that if a backup offer were to arrive, the first buyer would have only 24 hours to remove conditions, or the second offer would take precedence.  On this project, we eventually received a better backup offer at a higher price.

4.  Greater flexibility on price - the offers received will likely be lower than forecast at the start of the project.  This means margin compression will be impossible to avoid.  The seller needs to be conscious that reduced margin is better than no margin, and a sold product has no carrying cost.  Holding a house is costly, and to sell it sooner than later at a discount would possibly cost about the same as waiting months for a better offer that could be month`s away, or never arrive.

In a down market, each sale is just a snapshot of where the market is going, and the sales volume can be slow, disguising the true pace of how far the market has already moved, or will be moving.  Sellers that are slow to adjust can chase the market down by refusing to accept a lower offer than they had become fixated on when the market outlook was brighter.  A wise seller will stay ahead of the market by listing with a competitive price that appeals to the value conscious buyer and offering a little nicer product to sweeten the deal.  Will this result in a lower margin for the seller?  For sure, but it will also put the seller in a cash position ready to now buy back into the down market and launch a new project with better and more accurate numbers.