A marketing strategy is an overall plan, in other words: The big picture. What are you trying to accomplish? By what time? How can this be done? There is nothing wrong with high aspirations or the "Power of Positive Thinking." But if your goals are not realistic, and you think that you can control the market for your seller, sooner or later you will realize the folly. Realizing it now is best.
There are three basic strategies to consider, one of which will suit each case. They are
• The classic approach
• The (maybe) top dollar approach
• The quick sale approach.
The classic approach to a marketing strategy is the mainstream approach rather than one of the extremes to be discussed later. It is the correct strategy for the great majority of serious home sellers and probably is most familiar to you. In the classic approach, the home enters the market at exactly the right price and sells in whatever is a reasonable time for your current market. If a home languishes on the market, the price has proven to be higher than the market will bear. In many major markets, often over 50% of home sellers err on this side and cost themselves time and money. You might point out to your seller the number of local properties that have been on the market for too long a time.
To accomplish the classic approach, start with the expected contract price from your home value analysis. Add to that the proper amount for negotiation. This amount is frequently much less than many would guess. But why guess? It might be a good idea to run an updated selling price to asking price ratio calculation. This could even be tuned in on your seller’s price range or geographic area. Remember that the data must include at least 200 recent sales to ensure statistical significance; the reliability of the information generated.
Why does this work? The classic approach holds that at any time a home enters the market, there are a certain number of ready buyers, let us assume 25, milling around in search of such a home. They've seen everything currently on the market. Within a week or two these 25 buyers will notice your new entry on the market, visit it, and form an opinion. If everything is right, including the price, the home will sell to one of these buyers. If not, you will never see them again. They will feel no need to see the home again later, even at a lower price.
After this "initial wave" your seller’s home will be visited only by buyers newly entering the market. This number is comparatively low and will produce, for example, only one or two visits weekly. But if one of the initial wave of visitors did not buy the home, the newly entering buyers probably will not buy it either. Eventually it will become apparent that the home’s asking price needs to be reduced.
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The classic approach is usually the best approach, but even with the best plan, occasionally a home will not sell in a reasonable time. Actual results do vary. The numbers above serve to illustrate the theory. In the real world, the drop off in buyer visits might not be precipitous: Don't look for exactly six visits per week for four weeks, followed by an immediate drop to one or two visits per week. Good judgement comes with experience.
The (maybe) top dollar approach to a marketing strategy is acceptable only in strong sellers’ markets. It attempts to maximize price at the expense of time and will be discussed even though it normally should be avoided.
To accomplish this approach, you again start with the expected contract price. To establish the first asking price you add significantly more fat for negotiation than indicated by the current selling price to asking price ratio. Next determine a last asking price at about 10% lower than the expected contract price. Then, divide the difference between the higher and lower prices into steps equal to about 5% of the expected contract price. Finally, schedule these price steps evenly throughout the available home marketing period, or the maximum acceptable time for your seller’s home to be on the market. The following is an example for a home with an expected contract price of $500,000 and six months available for marketing:
• March 1, $550,000 (initial asking price)
• April 1, reduce the price to $525,000
• May 1, reduce the price to $500,000
• June 1, reduce the price to $475,000
• July 1, reduce the price to $450,000.
In this example, your seller wins if the home sells in March or April.
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The top dollar approach seems logical enough and will sell a home for sure if the plan is followed. If your seller considers this approach, keep a few things in mind. The seller’s cost to keep most homes can approach 1% of the market value per month, or $5,000 monthly in the example above. If the home will be vacant, $25,000 could be lost in five months.
In a strong market with rising market prices this approach has more appeal: If the initial price is a bit high, market appreciation will overtake the excessive price and the home will sell. In a stable market, it is doubtful whether this approach will mean extra dollars. In a market of falling prices, it can be a disaster: If your seller’s price reductions do not overtake the falling market, the home will sell much later at a much lower price as it "follows the market down" never at quite a low enough price to sell until desperation shocks you (or the next listing agent) and your seller into reality. Because it is invariably a waste of time, this approach should be used only with the most stubborn seller who absolutely refuses to face reality.
The quick sale approach is not suited for many sellers. It minimizes time on the market at the probable cost of several thousand dollars. But if your seller needs to sell quickly, this approach will work. The home will enter the market at an asking price at least 5% lower than the expected contract price and should sell relatively soon. Of course, what is "somewhat lower" and "relatively soon" will vary depending on local market conditions.
Be prepared to be very firm at the negotiating table. If a counteroffer is necessary, supply the selling agent with data to support your price: Your market value analysis, an appraisal, or comparable sales, for example. Point out that this information is to be shared with the prospective buyer to support the reasonableness of your counteroffer. Counsel your seller to be calm, reasonable, firm, and not to appear anxious. If the buyer gets the idea you are in trouble, you indeed will be in trouble. If the negotiations are executed properly, the buyer reluctantly will agree, due to the data presented, as well as from the market knowledge he has gained from viewing other properties. Your seller’s home will be the best option.
The quick sale approach maximizes the chance for multiple concurrent offers. If negotiations take a couple of days, your chances improve. If you can develop a second offer, your seller could end up with full price or more without having to make any concessions.
You now have three well-defined marketing strategies from which to make a selection. There are a few additional considerations that will be very helpful. But first it bears repeating that if a home's price is too high for the current market, there will be few visitors and no offers. Even if the overpriced home is shown occasionally, it will receive no offers. Any buyer who sees 20 homes in a certain price range will be able to reject easily, as a comparatively poor value, any home that is priced more than 5% over its fair market value.
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Since at least some other homes will be priced right, your seller’s home needs to be priced correctly in order to compete. In short, an over priced home will be shown to the wrong set of buyers: Those who can afford more. It will not be shown to the right set of buyers because their price limit is below your seller’s asking price. It is essential that you understand this simple fact and are able to recognize it and communicate it to your seller effectively. Know what works, why, and sell your expertise convincingly.
This article is excerpted from David Rathgeber's
AGENT'S GUIDE to REAL ESTATE
which is free online at http://www.davidr.net/AgentsGuide.html