Realtors use a static pricing system to present a property to the market. Typically a list price is determined, based on comparable sales data, appropriate adjustments for time, and in this market an awful lot of guess work. The property is advertised and placed on the local MLS and probably Realtor.com. Open houses are scheduled and a realtor usually sits in an empty house for the better part of a Sunday afternoon. Then they wait, and wait and possibly wait some more for the phone to ring. You start to see why I’ve call it a static pricing system. Without a mechanism to encourage competition or create urgency on the part of the buyer, the seller can feel as if they are being circle by sharks waiting for a sign of weakness. Therefore, most Realtors will suggest to their sellers they reduce the list price by 5% or so every month or two until a buyer bites, pun intended. In effect they have become auctioneers. Wait a minute doesn’t an auction start with a low bid and work its way up? In a traditional or western style auction they do, but there is an auction that works the other way around. It’s call a reverse auction or Dutch auction, where the price comes down so much over a given amount of time, until the first buyer to raise his hand becomes the winning bidder. That’s what realtors are asking their clients to do in the current buyers market. It appears safe but its reactive and allows the buyer to drive the transaction, without I might add any form or competition between buyers, just first hand in the air (or signed offer) becomes the winning bid.
I’d rather use a dynamic pricing system. Grant it, I’ve been an auctioneer and real estate broker for over 25 years and I definitely look at a real estate transaction from a different perspective, but wouldn’t it be better if we could create some sense of urgency on the part of the buyer and then require them to bid against each other to determine the selling price and maybe in the process put the seller back in control of the transaction? And wouldn’t you rather have the bidding going up rather than down? If a Realtor suggests a series of price reductions over time to “capture the market”, ask them when the process will end, when your property will sell? At which point you will likely get some flailing of arms and mumbling about extended time on the market and “you know we’re in a buyers market now” at which point she’ll give you her best guess. A real auction conducted by a professional auctioneer/broker is intensely advertised, placed on the MLS and Realtor.com for 30 days. Then all interested buyers will gather (some via the internet) at the same time, on the same day, to bid against each other with the price starting low and moving up until the last man or women is standing. Then the high bid is delivered to the seller for their acceptance, rejection or counter. If accepted the transaction is closed in thirty days to a pre-qualified buyer without deal killing contingencies. If it is counter the transaction is negotiated with the high bidder 9 out of 10 times resulting in a sale.
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