Drop the price to sell?

[John Warren]

Hello BP community,

I am currently in the process of selling my own home. My wife and I have rehabbed it over the last three years, and now we are going to sell and use the profits to house hack!

The house has been on the market for a month, but there has been no traffic this last week. The first two weeks saw tons of traffic and over 25 people between two open houses.

We are priced fairly competitively (only two comparable cheaper in our town), bit I am wondering if I should start dropping the price. We are located in an A neighborhood with VERY desirable schools, but on a busy street by the train. 

What  would you all do? Drop the price to repopulate on Zillow, Trulia, etc? Leave it alone because it's the Holliday season? We really want to sell so we will have the capital to accelerate our investing.

[Aaron Mazzrillo]

Apparently nobody here really understands sales. Dropping the price is the worst strategy. It makes you look foolish and sends the wrong signals to potential buyers who will now offer even less because you have just shown your cards.

Let's look at the economics of a house sale;

We have a buyer who is going to most likely get maximum leverage from a lender at an unprecedented (and absurd) 3-4% interest rate.

An agent looking to make highly taxable earned income (the real loser in this whole scenario). 

The seller who is looking for a hassle free and quick sale.

So, you drop the price $5,000 because your house isn't selling and you think this marketing 'strategy' is going to do the trick. Let's pretend you get an offer at your new asking price (but you won't. You'll get one an additional $5K less). The buyer closes and the mortgage payment is $22.45 less per month (3.5% rate) than if he/she paid full price. An amount that isn't even a consideration when home shopping. The agent makes $125 less. Again, not an amount that will kill a transaction. You make $5,000 less. A significant dent in your net profit. Ouch!

Let's look at this from another perspective. Agents are highly unethical people. They are also greedy pigs. Most suck at what they do and try to live off the 5-6 houses they sell each year. A pathetic income. What if, instead of giving away a large chunk of your profit which you should only do as an absolute last resort, we increase the commission (bribe if you will) from 3% to the selling agent to 3.5%. Instead of giving away $5K, you give away an additional $1,645. That is $3,355 more for your pocket.

Now, that lazy, greedy, sucks at her/his job real estate agent looks through listings on Friday morning preparing for the house showings to be done on Saturday and sees 2%, 2.5%, 2.5%, 3%, 2.5% and then your 3.5% commission pops up. Honey stop the car! (I effing hate that stupid, stupid marketing gimmick.) Which house do you think that agent is going to show? Which house do you think that agent is going to push onto their buyer and convince them that it is THE house they should be offering on. I'll go one step further and say that they might not even show any other houses or really bad houses and then bring them to your castle and say something lame and cheesy like, "Well, this one is a bit out of your budget, but it is truly THE BEST priced house on the market today. It probably is already in escrow, but let's go take a look just in case it is still available."

I typically increase my commissions by as little as a 1/4 %. I just raised one last Thursday (always the day to do price decreases or commission changes so it shows up on Friday's searches as "new") and guess what I got in my inbox on Monday morning? Full price offer on a house that is in a very challenging area. 

This is how you do sales and it works like a charm. Take advantage of what the market gives you - greedy, lazy, sucky agents. Pay them more for their suckiness. Pander to their laziness and watch your listings fly off the shelf.