Posts Tagged ‘The Luxury Insider’

The Luxury Insider: Pricing Tactics…Or the Art of Juggling with a Grenade

By Alain Pinel | March 21st, 2012 0 Comments

One of the oldest and still challenging question both home sellers and their listing agents dread the most (aside from the commission issue…) is “What price should we put on the listing to produce the best price in the end?” You all have been there before, right? Most of you did fine; many did not and wished they had used a very different approach, if only they had known; if only they were given another chance.

The choices have always been and will always be the same:

  • Overprice
  • Underprice
  • Price at what is perceived to be “market value”

The problem with this question is that there is no magic recipe that works every time. It depends on the market, it depends on the property and it depends on the marketing. Let’s look at the three options and briefly analyze the pros & cons of each one.

  1. Overpricing: Hard to define what is an overpriced listing. As far as I am concerned, an overpriced listing is one that does not sell!  In other words, a property is not “overpriced” if a buyer buys it, even if we thought it was when we put the For Sale sign in the front lawn. The supply & demand dance can do strange things in a good market. Want an example? Look at what happened in the Silicon Valley over the last 3 months: very little inventory, huge pent up demand, cheap mortgage money, reassuring economic news, more stable job market, rich IPO’s on the horizon, etc. Results: in the mid range of the market, around $1M+, selling prices probably jumped 5 to 10%. It means that if a home was listed in January 5/7% over what we considered to be a “reasonable” price, it could have sold at full price in March. Now, before you get too carried away, let’s use a little wisdom that only experience can provide. In the real estate business, the past is not necessarily a good guide to predict the future. It is not because prices have jumped yesterday that we can count on the same thing tomorrow. What we can say, looking backwards, is that if a house in that region has been on the market more than a month and did not sell yet, chances are it is indeed overpriced. Overpricing, in any market, is a dangerous idea. In my book, it is a terrible idea and entirely counter productive. If and when the property sells, after repeated price drops, it almost always ends up selling for less than otherwise it would have, had the price been more realistic from the start. If the market is hot but the house does not move quickly, it will soon grow old and collect dust, as Realtors will always prefer showing new listings rather than those which have been aging on the shelves. So much for overpricing. Your choice.
  2. Underpricing: Talk about dangerous games!… You must have a strong heart to deal with this option. It can work to the sellers’ benefit, occasionally. It can hurt just as well. In the hot market we have been enjoying for a little while in the Silicon Valley and many other markets throughout  the US, underpricing is getting to be as popular (and risky) as bungee jumping. The idea is to tease anxious buyers with a price 5 to 10% lower than what we perceive to be the market price and manufacture a bidding war which will result in multiple offers and ultimately a sales price well over the asking and over what we thought the house would normally sell for. Some agents make a good living (for the time being) advising their clients to take a chance with such tactic. They may even draw some pride and good PR from the fact that their listings routinely sell at a higher price. That, of course, is a bit deceptive since it is a deliberate strategy designed to accomplish exactly that. Keep in mind that underpricing does not guarantee a higher price. It could go the other way. You might get stuck with a low price and no good offer. You could also have an appraisal problem, depending on the financing, because of the resulting inflated price. Do I favor this option? No. I just don’t like to play games. Your choice.
  3. Pricing at “market”: If you, as a home seller or as an agent, think you know at what price a buyer and a seller are likely to come to terms, in any market, because you have a bunch of reliable comps (recent local sales of similar properties, active listings…), I suggest you use that option rather than play with a grenade. You may put a tiny cushion on top of the price to allow for possible negotiation. If the price is too high, you will soon know and you will trim the excess fat right away. If the price is too low, well, you may benefit from an unintended buyers’ frenzy. If the price is right, you will likely obtain a quick & easy sale. A win-win. I like that scenario and I bet you do too. We all sleep better when we do it this way. Again, your choice.
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The Luxury Insider: The Top Guns are Back!

By Alain Pinel | March 7th, 2012 0 Comments

Can any agent sell a multi million dollar residential property? Theoretically Yes… Practically: not readily, aside from “accidental” business. It takes a very special person who can relate to the client and the subject property at that level. Not every agent can play the part and be a maestro at comfortably managing the entire transaction with the clients’ trust.

There are lots of Realtors, thousands of them just in the heart of the Silicon Valley. I feel fortunate knowing a good portion of them and I would not hesitate to say that most of them are very good at what they do, irrespective of the company affiliation. They are smart, knowledgeable and genuinely devoted to serving their clients and customers to the best of their ability. They do care about their fiduciary duties.

That, of course, does not mean that they are equal and interchangeable. Some are better than others. This is especially noticeable in the high end.

If I were to generalize a little, I would say that there are three classic levels of real estate professionals. Some gravitate from one to another during the course of their career, while some get stuck in the same box if they cannot or don’t care to change their profile. Here is the picture, painted with a very big brush to make the point:

  • The Average Agent: Sincere, friendly and committed to the principal’s satisfaction, but usually a train too late in a fast market to be truly effective and therefore successful. Typically, he/she waits too long to preview the new listings when they are fresh on the market. When they are finally ready to see them, at the weekly brokers’ tour or when they have an opportunity to show them to a customer, those listings are often already under contract.
  • The Better Agent: Energized, mobilized, he/she knows and keeps current with the inventory of active listings, understands market trends and the menu of mortgage options….But most of them are just waiting for the office phone to ring. They rely on what may fall from the sky rather than the business they could generate on their own. They don’t prospect much and they don’t promote themselves in the local media. The result is predictable: they don’t have listings and they have a hard time finding buyers.
  • The Great Agent: They are ready 24/7. When the phone rings, they answer. No time to listen to voicemail. They “own” the market. They know every street and nearly every house within their “farming” area. They know who bought what, when & how. They know the owners’ names and, most of the time, the people behind the names. They are the top guns. They are back. Not that they ever left; they just relish this challenging yet exciting market in the high end.  Who worries about a listings drought and tight credit when you know the people who would agree to sell their luxury property given the right price and the buyers who can pay cash to buy it?

There are only a few superstars in each marketplace, mostly in very affluent towns or districts. They know each other very well and like to work between themselves, in spite of the different company flags.  If a $25 million listing comes on the market, chances are it belongs to one of them, and chances are one of them will sell it. Often those upscale listings never hit the MLS. They sell within the “club”. The top guns know best how to leverage their company’s marketing & technology strengths to complement their own. They are so powerful that you would think they are “making the high end market” instead of merely adapting to it better than others. No, they are just smelling the market before anybody does and pricing properties based on their anticipation of the traditional tango of supply & demand. Want one example? While today most agents are waiting for the Facebook IPO around May to sell real estate to the new millionaires who will be good enough to stop by the office, the top guns have established contact with hundreds of them long ago. There is no substitute for preparation, organization, focus and ambition. That’s life in the fast lane.

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The Luxury Insider: The future of the luxury market

By Alain Pinel | January 25th, 2012 0 Comments

Dear readers –

As you may have heard, recently industry icon and good friend Alain Pinel joined our Intero family. To further share with our readers his tremendous knowledge on luxury real estate, you will receive a Luxury Insider – A weekly glimpse of the high-end real estate market blog written by Alain. Hope you enjoy this valuable information. And thank you Alain for your insight on the luxury market.

- Gino Blefari

2011 is gone. Thank you. Don’t know too many home sellers and home buyers who will remember it fondly. I will venture to say that most Realtors share that sentiment. Actually, the best thing that can be said about last year in the real estate business is that… It did not get worse. We’ll take it. After some four years of nasty economic news and agonizing uncertainty, a flat year is a welcome transition. Real estate values have stabilized in the Silicon Valley. The ground is firmer. We now have a more stable foundation to build on. The business climate also is changing: the many “For Lease” signs that we used to see in the hi tech districts have disappeared from the curbs and the job situation has improved considerably. We still have to jump a few hurdles such as a tight credit but, together with low mortgage rates, a decent inventory of homes, attractive prices and a growing pent up demand, today’s picture calls for optimism.

The segment of the market most likely to benefit from the above is the luxury market, the “high end of the high end.” In a way, it was to be expected since it is the segment of the market that suffered the most over the last 12 years or so. Since the dotcom hay-days of 1999 and 2000, prices and number of sales have been cut significantly.

Case in point, let’s take a look at Atherton, the perfect “high end market,” during that stretch of time.

In 2000, 28 sales over $5,000,000 were posted on the MLS for an overall market average price of $3.8M. From that point on, the number of transactions shrunk and ended up at 10 last year, roughly a third of the 2000 high mark. The stats for 2004 came close (21 sales), but no cigar.  In terms of price, the overall Atherton market average last year was $3.4M, still 10% below the price achieved in 2000.

At a time when cash is coming back to the valley, fed by new IPO’s, a new wave of  buyers in the $ million range anxious to move their equity to higher grounds and foreign investors looking for a safer refuge for their money, things are looking up in the luxury market. I bet the high end is going to be again the market locomotive it used to be. Happy New Year!

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