Find out more about how pricing is impacting your sales.
What is the single most important thing an agent should know if they want to thrive in real estate? That was the question that I was recently asked by a well-known real estate authority. I looked at the questioner, hoping the question was rhetorical. It wasn’t.
My mind raced through my 30-plus years of real estate experience, the thousands of hours of seminars, and the hundreds of success books I read. I felt like a newly chosen participant for the TV show “Survivor” because the show will allow each person to bring one item to the island. Choosing matches or a Swiss Army knife seemed a lot easier than this challenge.
The Law of Pricing Efficiency
Then it came to me—real estate physics. Interesting enough, I had never seen or heard the word physics associated with real estate, but I believe there are laws in real estate that are as consistent and predictable as the laws of physics. There’s more than one law, but the one I want to talk about now is the Law of Pricing Efficiency.
Do you agree with the following? Selling a listing isn’t a product of the agent’s marketing prowess. Conversely, carrying listings that don’t sell is not a sign that the agent is a marketing nincompoop. In other words, marketing does not cause a home to sell, and the lack of marketing does not prevent it from selling.
Let me walk you through my thought process:
What happens when you place water in the freezer? If you say, it freezes, you may be correct, but that would assume that the freezer was plugged in, and it was cooling at or below 32 degrees. The freezer doesn’t make water freeze it only provides the environment needed, and then physics takes over. How often will water freeze at 32 degrees? It works 100 percent of the time.
Likewise, the Law of Pricing Efficiency works the same way. When a listing is priced in the correct range, real estate physics takes over, and the listing sells. How often? It works 100 percent of the time.
However, in practice, this is what happens: An agent lists a home, holds one open house, and it sells. The agent (and the seller) believes the open house sold the home.
The open house wasn’t the cause of the sale any more than the freezer was the cause of water freezing. This home sold because it was priced at or below the freezing point. The Law of Pricing Efficiency states that the home would have sold anyway. Besides, if open houses caused homes to sell, then agents would hold every home open. Yet, we know only a small percentage of homes sell during the open house.
How about the listing agent who lists a home, but instead of putting it in the MLS, he has a “sneak peak” pre-launch event so that he can round up multiple buyers and create a bidding environment. The home sells, so he concludes that his marketing scheme sold the home. Again, that would be incorrect for the same reason as I mentioned above.
I could list 100 different marketing plans and scenarios where agents believe the fact that they put their listing “in the freezer” is what caused it to sell. If marketing sells houses, then how would you explain all of the homes that are being sold before they go into the MLS and before the marketing is launched?
Understand the Concept
Understanding the efficiency of pricing will add money to your bottom line and years to your life. You will never have to sit at a sympathy open house for the stubborn, overpriced seller who thinks you’re not doing enough marketing. Fully grasping this concept, you will be able to stare into the seller’s eyes and say, “There is nothing more I can do to sell your home.” The seller will most likely blink, and you will walk away with a price reduction.
Agents who fail, or stubbornly resist, these laws may find themselves looking for creative ways to feed themselves as they continually feed seller’s never-ending appetite for more marketing.
Men have been to the moon and back because of the power and consistency of physics. Your career can head in that same direction if you embrace the laws of real estate physics.
This article appeared in REAL Trends Newsletter and is being reprinted with permission of REAL Trends, Copyright 2015.