Retail vs. The Clearance Rack

Oct 24, 2011 11:35:21 AM


By Gary Keller, co-founder and chairman, Keller Williams Realty

It’s one thing for your clients and prospects to read in the paper or hear on the news that home prices have declined. It’s quite another when the reality hits home, and you’re at the kitchen table helping a client come to terms with the fact that the price that they want or “need” isn’t in line with current market values.

Pricing conversations can be a critical moment of truth in any market, but when local market values have trended downward, pricing a home to sell – and explaining this dynamic to sellers – takes on a new dimension.

I was recently talking to Shaun Rawls, concerning the challenge of resetting seller’s expectations about the listing price and market value of their home. He offered some great perspectives and a solid script.

Gary: How are you counseling your agents to initiate pricing conversations with sellers?

Shaun: It’s a conversation that should be backed into, and is the case of so much of what we do, success hinges on asking good questions. Even though the media has given a lot of attention to the “down real estate market,” we need to keep in mind that most people have come to take for granted that home values would remain on a constantly upward trajectory. The last time they bought or sold a home, they essentially hit the pause button on market dynamics. That’s why, before we start talking price, it’s important to ask, “Tell me about when you bought this house.” That opens the conversation to a comparison of how the current market is different from the market that they remember.

Gary: So I tell you, as the seller, that I bought the house back in 2002 for $317,000. It was listed at $319,000 and needed work. I took out a line of credit for $50,000, updated the kitchen, and bought all new appliances. It’s just been repainted, the landscaping is beautiful, and you’re telling me, based on your comparative market analysis that you recommend I list it for $324,000!

Shaun: Here’s a script that our agents are finding helpful:

Let’s pretend it’s my birthday and someone gives me a $75 gift card to Nordstrom. One day, I run into the Nordstrom men’s department where I find a table of new shirts, and find one that’s my size in a color that I like … and the price is $75. Jackpot! I pick up the shirt and head for the register. Right before I get there, I notice a big rack of clothes with a sign that says, “CLEARANCE.” So, I take a quick detour, and as I am looking at the clothes in my size, I see a shirt that I like even more that was originally priced at $200 and is now marked down to $75! I really have a dilemma on my hands now.

Do I buy the $200 shirt for $75, or do I buy the $75 shirt for $75?

Well, buyers in this market have a similar choice to make when they are looking for homes. Except they have the option of buying the $1 million home for $750,000 or they can purchase the $600,000 home for $750,000.

All too often, new sellers put a high price on their home with the expectation of negotiating if it doesn’t sell at that price, but the point is this: in order to sell, a new listing must hit the market on the clearance rack on Day 1.”

Gary: So what if I tell you that this doesn’t really apply to me, because I don’t really have to sell.


While you may think that’s an advantage, it’s actually a disadvantage in this market. What we are seeing is that sellers who don’t have to sell, don’t, because they’re competing with sellers who absolutely, positively have to sell and will do whatever it takes to do so. Selling a home in this market is a price war and a beauty contest.”

Gary: Shaun, thanks so much for sharing this with us! If anyone has a script they’d like to share, leave a comment below.

Onward ...