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    Price. Drives. Everything.

    November 1, 2016

    By: Richard Haynes
    Price Drive Everything

    A topic near and dear to my heart is the art and science of pricing. The biggest, most established agents claim they can sell your property because they can afford the most in marketing/advertising and have hundreds if not thousands of connections. The smaller, less established agents claim that since you are their one and only listing that they will hustle and dedicate 12 hours a day in the pursuit of selling the property through cold calls, door knocking, and letting every single person and agent in the local area know your home is a great buy. 

    Some of that matters and we can save that argument for another day, but the most important factor in selling a house is the price.

    All markets are efficient and with the advent of an internet-based MLS, the real estate market is no exception.

    First off, let’s explore markets outside of real estate…

    Most of our readers are familiar with Apple, Inc., right? They are the maker of iPhones, iPads, iPods, and trendy computers. Currently, their stock trades on the NASDAQ for around $111 a share. If a stockbroker came to you and said he could sell your shares for $150 per share through great marketing, well, a seasoned stock investor knows…that is absolute hogwash. Who would buy a $150 share of Apple when they can purchase it for $111 on the public market? If you offered me your shares for $99 each, I would buy everything you have in less than 10 seconds. But if you told me and your neighbor, we would probably bid it up close to $110. If you told me and 20 neighbors, I am pretty sure you would get $111.  

    Are stocks not your game? What about cars? Let’s say you are looking to buy a 2015 Porsche 911 convertible. Kelley Blue Book says a base model is worth between $83,000 and $91,000. You see two dealers with the exact same 911, one asking $85,000 and another asking $90,000. Which dealership are you going to first? Probably the cheaper price. And if the $85,000 has an offer for the full price, would you be willing to pay $88,000? Perhaps…but let’s see if the $90,000 dealer will take $87,000. Am I right?

    A little drawn out, but I hope you get the picture on efficiency and price. So now, let’s take a look at some South Bay real estate case studies…

    Case Study #1: 2605 Graham Avenue, Redondo Beach (Duplex)

    This duplex started at $1,100,000 touting a 4.75% CAP potential which is fantastic for the area. It was priced just right if it was not in disrepair and needed between $50k and $100k of work. So really, it was worth between $1 million and $1.050 million. It sat on the market for weeks until they dropped the price to $1,049,000. Shortly after the price drop, an investor client of ours smelled blood in the water and decided to offer $900k, well below its worth. Safe to say, our client did not seal the deal. A few months later, after 112 days on market and one failed escrow, a deal was finally made. It sold for $1.025 million, the proper discount for the repairs needed. The seller should have listed for $999,000; there would have been a frenzy from do-it-yourselfers or overly excited investors to acquire the property and do the repair work on the cheap. It would have gone over asking and probably landed at $1.025 million or higher in a week. But instead, they weathered six months of holding costs, the hassle of multiple escrows, and the risk that they could have cracked and accepted our $900k low ball offer. Not worth it. Price drove everything here.

    Case Study #2: 1410 N Ardmore, Manhattan Beach (SFR)

    A single-family home listed at only $800,000 a mere five-minute walk to the Manhattan Beach Pier, on a 4,000 sq. ft. lot that has new construction homes asking over $4 million. Wow, what a  deal. And it could cash flow as-is with very little down….and again, only $800,000 you say? WOW! Why would anyone list that low? It is worth way more than that. This home attracted over 20 offers. A client of ours offered more than double the price ($1.6 million) and we still did not get it. Real estate is efficient…it will sell for what it is worth…as did this one did, very very quickly.

    Case Study #3: 560 21st Street, Hermosa Beach (SFR)

    We have had multiple calls from clients on this one with quotes like this: “A Hermosa Valley single-family home on a full lot asking only $1,699,000/$670 a sq. ft. when there are homes selling between $800 and $1,000 a square foot. Let’s make an offer.” We then explain that this is only half the lot of a single-family home sitting on two lots. They originally came out asking $3,799,000 for the house on both lots. That is $200k higher than an existing home TRIPLE the size that sold down the street earlier this year. They dropped the price to an “amazing” $1.699 million, but if you read the description carefully the secon lot AKA the other half of the house you need is listed for $1.899 million. You can’t sell half a lot with only half a house. This clever marketing is a gimmick and in all likelihood has yielded many many calls to the listing agent (lucky them)…perhaps half the South Bay has been interested at one point. But when the facts come to light, proper pricing wins out over marketing. This property will continue to sit until it is priced properly, clever marketing gimmicks and all.

    We have hundreds of examples of good pricing vs. poor pricing, and we will work to provide more examples throughout the beach cities and Palos Verdes in the months to come for you to read and learn. As you will see, the good pricing normally leads to the best price, least hassle for all parties, and significantly lowers the sellers’ risk.

    Look out for a blog post coming towards the end of the year with a property we worked on (Torrance duplex) to price aggressively in hopes of getting an above-market price by listing below the market to drive massive interest. As a result, we are going to escrow today with a record price for the area. Stay tuned…

    It’s Your South Bay. Own It.

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