Down Sales Market? Think Outside the Box

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I read a blog posting recently on another site where someone commented that to sell an investment property faster, they should lower the asking price. That isn’t how the investor’s motto goes.

“Buy low, sell below market?” I thought it was, “Buy low, sell high?”

A simple comment from an investor suggesting that another investor should consider listing a property below market value, should not have gained my attention like it has.

But it did. In fact, it got me all riled up. It got me thinking so much that I decided to write an article about it. Let’s take a look at why…

I recently completed a rehab on a house I bought in February of this year. I bought it for $75,000 and had an ARV of $128,000. I am not going to break down the details of the deal but I want to look at the selling aspect of it.

Earlier in the year, the sub-prime mortgage market all but went away. I checked the comps in the area once a week during the rehab and as of late July, houses were still selling. I wanted to have the house on the market a month before school started and figured since I now had the nicest house in the subdivision, it would sell fast.

It is still on the market. Not only is it still for sale but in the six weeks it has been listed, I have had ONE showing. ONE!

To make matters worse, a neighbor four houses down with more square footage than my house, listed theirs the same day for $20,000 under market value! I went nuts!
I printed off all the comps and showed them to the owner. I suggested to her that she should raise her price based on the recent sales (I didn’t mention to her that her listing was killing mine). She seemed oblivious and later I saw she didn’t raise it. In fact, after four weeks, she lowered it $10,000!
The funny thing is, she hasn’t had any showings either. Why?

Should I take the advice from that investor and lower my price?
NO!

If the neighbor down the street has already dropped their price as much as they have and their result has been no one looking at the house… Well it tells me the problem is not price. So how am I going to sell my house if I don’t lower the price? In this market, it’s not price that is keeping the buyers away. No one is looking because the media has the public convinced that buyers can’t get a mortgage. If they think they can’t get a mortgage, they won’t go looking at houses.

Wait a minute! Other parts of DFW are doing alright with area sales. Why? Price range is why. The areas where prices are $200,000 and over are slow but they are still selling.

I would think most of those buyers are stronger credit & income-wise.
So if dropping the price won’t get more buyers to look, what else can I do to sell it?
My answer is… Let’s give “greed” a try and see if it helps get some interest.

I am going to print off some color flyers and take them to the Realtor offices in the immediate area to get extra attention. How is that greed? It’s not. Right now my house is just one in a big pool of houses in MLS. I need to get the house exposed and I will do that by getting to the Realtors. Once I have their attention, I will make it worth their while. Unlike most real estate investors who get Realtors to hate them because they want services for free and they want them yesterday… I will give Realtors what motivates them…Money. In other words, I am going to appeal to their greed (my apologies for using such a strong word).

The flyers will act as an invitation to attend a Realtor-only, open house. They can tour the house and see first hand all the work that went into it, while they enjoy a free, catered lunch. That tactic is nothing new to Realtors though. It’s not done a lot but it is done. Appeal to their greed by feeding them? Well not exactly.

The standard buyers’ agent commission in Texas is 3%. So I am going to offer 4.5% to the agent that brings a buyer. How about throwing in a bonus of $500 to $1,000 if the agent gets it under contract in the next 30 days? Not bad. I am betting my incentives will get several agents attention and my showings will see a dramatic increase.

If I don’t have any buyers looking at the house, I have no chance to sell it. I could offer all sorts of buyer incentives like paying some of their closing costs or buying their rate down but, that doesn’t matter if buyers don’t look at the house!
Who brings buyers? Realtors bring buyers. So my approach to selling a house in a “down” market is not to lower the price (which won’t help the market go up). My approach to finding a buyer is to “take care” of the people that bring the buyers…Realtors. The good investors know how valuable they really are.

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42 Comments

  1. Jim, I disagree with you on some points. Even when home builders are offering agents $20,000 bonuses, we cannot make the client choose that house. Don’t get me wrong I’d love to get the bonus, however we have to do whats best for the client, not for us. So whats best for the client? Getting the best home, at the best price!

  2. Dallas Homes For Sale: Disagree all you like. I don’t even disagree with your points. My overall point is, MLS hasn’t helped bring buyers so I need to get someone to bring them…Realtors.
    Whats best for the client? I don’t know. But I do know that I have the best house (in that area) and I am $1.00 per foot under market. So bring your clients… let them decide.

  3. I’ve gained 10 pounds in the last 6 months from all the builders and service providers giving us free food. Lol. I actually don’t disagree with your tactic and have seen it work a few times. My clients always end up choosing a different home than the one with the great commission. In this case it sounds like you have the best house with the best co-broke. I think your right though, the one on the market for 30k less is a tough one.

  4. I think your approach towards selling your property is an excellent idea! My website actually provides exclusive advertisements, for real estate agents by home-builders, that offer special co-broke incentives. We’ve had a really good response from many Realtors here in Arizona.

  5. We must have read the same comment for the same blog. In fact, I commented on “thinking outside the box” on that blog. However, I was mostly suggesting looking into creative financing. Price higher, not lower. Contact a note buyer to see how to set it up to get a good price. Do owner financing, then sell the note to get your cash. Get the details from a note broker, or buyer.

  6. JJ,
    I don’t base any house of mine on “what I’d like to get.” I base it off SOLD COMPS within a 1/4 mile radius within the last six months.
    They show that houses of similar square footage, have sold within the past 45 days within the radius of 1/4 mile.
    Guess what? They show my house is listed under what the sold houses sold for per square foot.
    So guess what? While you sit at home playing Monday Morning Quarterback, I will be out there doing what I can to get the house sold.
    Hey… Everyone is entitled to an opinion though. I am glad to see I was able to ruffle your feathers with my viewpoint. That is a compliment to me because it suggests my writing is getting through to people and making them think.
    And PS…. it’s a one story house. Sorry, I don’t anticipate my fall to be too substantial.

  7. How can you say it’s not price? Neighbor lowers it $20k and it -still- doesn’t sell? That means it’s still over-priced.

    You say it’s below market price? If it doesn’t sell, it’s not at market price.

    You’re holding an illiquid investment, and marking its value to something you’d like/expect to get, not what the market will pay. Guess what.. the market just got pulled out from under your feet.

    Don’t hit your head as you fall down the stairs.

  8. I knew that all those slammed doors and nasty names I was called by preforeclosure homeowners, would come in handy at some point. Otherwise I think my feelings could have been hurt. lol
    To Ace: Lease Options as most know them, are illegal in Texas.
    Look at it this way… good investors learn from other investors and around it goes…. Good luck to you.

  9. I’ve had a lot of experience with people wanting to save in foreign currency. It’s kinda hard here right now for us where I am. It’s good we didn’t invest in Florida’s Amrit.

  10. Would I bring a buyer to your home because you were offering a commission that was $1,500 more than the competition? No way, it would make no difference to me at all.

    If you would pay $1,500 worth of my buyer’s closing costs instead, I might do that, but only if your house was truly under market value.

    I would recommend to offer a fair commission to the Realtors and offer to pay some or all of their buyer’s closing costs.

    One dollar per square foot under recent sales does not seem to be an exceptional price. In our area, buyers are definitely shopping. You need to be in the top 10% in condtion and the bottom 10% in price.

  11. In response to Marty:
    I can’t argue with your approach. If I knew a Realtor wanted the bonus applied to the buyers closing costs… done.
    However, I did want to mention something about paying buyers’ closing costs….
    Last year I sold a house I rehabbed for $253,000 and I contributed $6,000 towards their closing costs. Their lender, went and padded every one of their “fee’s” and origination costs until they had used up the entire $6,000. Set me off something fierce.
    If I backed out, I would have been in breach. So the day of closing, I faxed in a “request for mediation.” The title company, buyers broker and the buyers lender all went nuts. By the end of the day, the deal closed after the lender credited back over $2,500.
    I don’t mind paying fee’s here & there. I do mind when it’s legalized theft.

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  14. Michael E. Hart on

    If your neighbors $30,000 discount on a $130,000 house can’t even tempt potential buyer to get their butt in the car to come take a look, then I would think “price” is not the issue.

    That being the case, I’d run an ad offering “terms” like “low down and no bank qualifying” … and I’d keep my price at RETAIL. What’s the worse that could happen? Nobody calls or comes to look? Isn’t that wants happening now? What do you have to lose?

    So anyway …

    How much is “low down”? My answer is always “It’s negotiable … what do you have to work with?”

    And “no bank qualifying” doesn’t mean “no qualifying at all”. Ask questions, check past landlords, look at their credit report, check their job, etc.. You don’t want some lowlife that never pays their bills … just someone who’s having trouble meeting “bank standards”. They might meet your “standards” if you don’t set them too high.

    People will always be willing to pay more to “own” than they will to “rent” (some, not all … but enough). Maybe you could offer to finance your buyer on a “3 year balloon”. Low down payment, big monthly payment … but they will “own it”, and that might be more important to people than most expect.

    BTW: You say that “lease options as most know them, are illegal in Texas”? Now you’ve made me curious. I’m going to have to check that out, find a way around it and write an e-book or something! Best of luck to you. I hope it works out.

  15. Tonia Vickery on

    I am a Realtor and this market is tough! Going to real estate companies with a flyer is not going to work. Because we don’t have any buyers! Hey, but we have listings and guess what? The seller’s all say they are drop dead, lowest price home in the area. When we do have a buyer they want the biggest, best looking, most upgraded house at the same price the shack down the street is selling for. If the market was declining 10% a year, would you buy a $500K for $250k? Sure you would. People will buy, even in a terrible market, for the right price. To all sellers/investors who in 2005 collected offers, made buyers waive all their rights, made them pay more than appraisal….this is their payback. We all can’t wait for the happy middle again. I feel your pain. The best thing about this year is that I am losing those dreaded pounds because I cannot afford to eat (smile).

    Be in the lowest three homes in your area (not just your subdivision), within your square footage range, and your house will sell. Make sure it looks good….really, really good. Every one of my sellers who price like I advise have sold their house in 60 days or less. I know it works. It’s size of home and price. That’s it. Don’t be adding on for all these upgrades, etc.

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  17. Getting Realtors familiar with the property one way or another is a good idea, but offering a higher commission won’t do it. If I were the Realtor witha potential Buyer. I would offer the difference to the Buyer, who would then offer a lower price and forgo the bonus. So it comes back to price again. In a down market, pricing according to comps won’t work unless you price below those comps. Otherwise you are always trying to catch up with the market as it goes down. That only works in a stable market. Cut your losses and cut your price, otherwise you will still own that house six months from now, and what is is costing you a month?

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  19. As a realtor, I love your thinking! In the past few years when the market was hot realtors have been making lower and lower incomes. (Some think it should be the opposite). In general there has been so much competition and less work had to be done so commissions tanked. Now that people are finally realizing how much work we actually do they are starting to want to pay us. I have seen an upturn in commissions in WA and OR. Personally bonuses don’t drive me because I want to do right by my client regardless of incentives. But I have used bonuses to sell my own property and it did work. Just remember you don’t need a lot of showings, just the right one.

  20. I think your dead on Jim….We as REALTOR’S cant decide on a house for a client, but when we see that big extra bonus commission siting in front of our face we are sure likely to help our client pick that house.

    Interesting ideas and post…thanks for sharing!

  21. Hi, well I am skimming thru these commments. I am a realtor, and I don’t just care about commissions. I care about my clients and getting them the best deal…fair. It sounds like the neighbor that listed their house was look at the market trends and that why the listed lower. The longer your home is on the market, the more compromised you are. The first question is “how long has this home been on the market” and ..” when was the last price reduction”? I hope this is taken in the way it is meant…to be helpful. Best, Sue

  22. Well I have a contract with my Realtor to sell for sell by owner and listed with her. I have a $2,000 bonus for the agent who brings a buyer and I have $2,000 bonus for whom ever brings me a buyer to the for sale by owner, I am on craigslist.com in Knoxville,Tn which is just approx 1 hour and 15 minutes from my home and a Local net work. Lots to do and see here awesome place have, love and a beautiful wood home in cedar with 4.41 acres. Tenn is a good state to sell but b/c of the market it was very slow but now picking up like you would not believe so I am just keeping my faith b/c I have to move further North and we just love it here but must so we have no choice but to keep it listed. Its listed for $224,900 fsbo and worth every bit
    in a quite area your own little paradise so if interested call
    1 931 863 8174 for pictures, questions and a showing. located in Grimsley, TN between Crossville and Jamestown, TN

  23. Thanks for your post. You raised an interesting point. It seems obvious when you say it, but buyers in different socio-economic income bands will have different perceptions on whether they can take the risk of buying a property.

    I have done a fair bit of reading on selling your house in a bad market, and the advice is almost always to sell your house yourself at below market value. That is despite the fact that realtors are property selling experts, and that offering them worthwhile incentives to make your property a priority is simply a sensible response to current market conditions.

    Once again, thanks for your educational post.

    David.

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