A few weeks ago, I listened to a podcast of a prominent real estate consultant. I’ll call him Jim. Jim is a very successful real estate broker who typically lists 300-400 properties per year. He also earns a very good living by charging Realtors to help them boost their business.

I enjoy listening to these consultants (and Jim in particular) from time to time because it often will give me some insight on the real estate industry from a broad perspective. A lot of the information deals with the “business” side of real estate and does not really pertain to the “for sale by owner” market.

But one idea really got my attention. It was pointed out that most successful real estate agents have a price reduction policy that is incorporated into their listing agreement with the client. The reason? Realtors only get paid when houses sell. The last thing an agent wants is to have inventory sitting on the market. Every day that passes with inventory that isn’t selling is another day without earning a commission. An example of a price reduction policy is: “The listing price will be reduced by 1% every 30 days until the house is under contract” or “The listing price will be reduced by $2,500 after every 12 showings without a contract”.

Let’s analyze this a bit. As we know, setting an asking price is not an exact science. Market conditions must be taken into consideration. In a slower market, setting your asking price based on comparable properties that have sold in the past may not be indicative of current market conditions. Therefore, adjusting your price to the current market may be what’s needed to get the home sold. Smart agents know that the lower the price, the quicker it will sell. I can’t tell you how many times Jim stated “Agents don’t sell houses - price sells houses”.

Having a clearly laid-out plan that addresses how price reductions are going to be handled can take the guesswork out of finding the right price for the current market conditions. When you put your home on the market with For Sale By Owner consider implementing a “price reduction policy” and then stick to it.

We just lost a client that listed with a Realtor. I never like it when a client is unsuccessful in selling their own home, and this case was no different.

These clients were friends - and although I haven’t known them that long - they are great people and I was really pulling for them to sell without paying any commission. Often times, when clients are not successful, it is because they are overpriced or aren’t committed to selling on their own. This client was committed - conducting and advertising open houses every weekend, they were advertising with our largest ad - they were even doing some supplemental advertising in the local newspaper.

They were selling a home in the upper end of the market and they insisted they had done their homework to price it. They had invited several top Realtors in to give them comparables, and based their asking price of $650,000 on their recommendations. The 18 year old home had been completely and tastefully renovated with custom moldings, hardwood throughout, kitchen with granite countertops and even a new 50 year slate roof. If ever a house shows well it’s this one. The home is in located in one of Loudonville’s more prominent neighborhoods.

So what went wrong? I had suspected the home was overpriced from the start but the client remained firm with their asking price. As a policy, we do not give specific pricing recommendations. I spoke with the client often when she would make her weekly visit to our office to pick up fact sheets for the week. She always remained optimistic but towards the end I could see she was becoming discouraged. At one point she called me to ask my advice about whether or not to call a visitor to her open house that had seen the house twice and seemed very interested. I strongly urged her to do so.

The next week when she came in, I asked how she made out with the call to the prospective buyer. She indicated that while they loved her home, they were going to look into new construction if they were going to buy in that price range. It was about a week or so later that I received a reluctant call from her husband that they had decided to list the home. He apologized profusely but explained that they were building a new home that was nearing completion and they had get their house sold.

This is where it gets confusing. Our office noticed that their home was listed in the paper this weekend with one of the area’s top Realtors. This Realtor has an excellent reputation and is very familiar and knowledgeable about the Loudonville market. Everything seemed right until we saw the price. It was listed for $575,000 - a full $75,000 less than they had it for sale by owner. Now, on top of that they will be paying close to $35,000 in commission! So let’s do the math. If they get their full asking price (which may or may not happen in this slowing real estate market), after commission they will end up with approximately $540,000.

So this client, who was so firm on her price when selling by owner, conceded $110,000 when listed with the Realtor. This begs the question ‘What if, before listing the house, they had called the prospective buyers that loved it so much, and offered it to them for $50,000 less?’ That certainly would have gotten their attention and they still would have been ahead $60,000!

What’s the moral of the story? Do your homework. Price your home to sell from the start. The correct balance of price and exposure dictates whether a house will sell.