aka – The Warren Buffett Approach to Creating Real Value When Home Selling
Chapter 1. Desperation is the Mother of Invention
Back in the late 1990s, before I went into real estate, I lived in an incredible home a block from the beach in a quiet residential beach community.
It was my “dream home,” and I literally fell into the opportunity to own it by luck and timing. I could look out the back windows and see wildlife in the Seashore State park nature reserve just behind us. I could look out the front window and see the sun rising over the Atlantic Ocean and waves crashing on the beach. It was a typical beach home, built in the late ‘60s: single floor living. It was surrounded with homes on similar lots, of similar size, and some new luxury homes had been recently built in the last few years, which was a sign of things to come for this quiet residential beach community.
Unfortunately for me, I owned it with my business partner.
We were in the process of negotiating a sale of the company and we had to turn the property to a liquid asset . . . CASH! I called my corporate attorney for a real estate broker referral. Now if you have ever lived in the good ole’ south, you would know that a lot of business is done through this type of professional “good old fashioned” network.
The real estate agent, who was a she, came with an excellent track record, had many plaques and awards attesting to her sales performance, and was with a long standing brokerage in the area, known for listing beach homes. It seemed like a perfect fit. We met at the house to discuss how best to sell it. It was clear she’d done her homework, and she brought sales data from several other homes that had recently sold in the area, as well as information about herself and her company. She’d prepared a comparable market analysis.
(Note: In real estate “speak,” this is called a “CMA” and is a report that uses other similar sold properties to determine market value for the house in question. It is typically prepared by a real estate agent to advise a seller on how to price a home.)
The CMA suggested our house should be listed (more jargon, meaning “put up for sale”) at $595,000. She loved the house, location, amenities, and the off street parking which is a big deal at the beach.
At this point you should understand that we’d recently had a professional appraisal done, for company purposes, which came in at $625,000. So needless to say I was surprised at her suggestion of a price so much lower than the appraisal. Nevertheless, since she was the “expert” and came highly recommended by my attorney, I went with her recommendation.
In addition I had a family member who was a real estate broker in the Philadelphia area. I asked him for his advice on what to do, since her CMA was 30,000 less than our bank appraisal. His advice was to find a good agent and price it accordingly and that sometimes bank appraisals were also incorrect. He said that appraisals were yet another’s qualified professional opinion on value, but a buyer has the final say when it comes to “real value” in the market. I met the advice of the listing agent part of the way, and we agreed to list the home for 605,000. She assured us that even though, we felt that we were taking a 25,000 loss right off the bat, that this was a market price she could confidently sell the home at, without much negotiation.
In hindsight, this was the beginning of the best seller’s market ever.
Well after a month and not a single showing, I called her and asked what was wrong.
She suggested lowering the price to 595,000 since the market “had spoken.” “Do you want to know what the market said?” she asked. I sure did! She told me it had said that we were “over-priced.” Wow! Here we were in what was the beginning of the best seller’s market that this area had ever experienced, with a home priced $30,000 below the appraised value, and we couldn’t even get anyone to schedule a showing. She next suggested “staging the home,” since we had moved out most of our furniture and personal belongings. I asked how much is that going to cost? She deferred and said, “I have an associate of mine who is a professional stager and has a natural gift for this kind of thing. I’ll have her give you a call to discuss her process and fee structure.” I thought to myself, “That sounds expensive!”
I was beginning to get frustrated.
I needed to sell this home to be able to sell the company to my operating partner and her silent partner, but not being a real estate expert, I had to rely on the advice of a professional. I reluctantly lowered the price to $595,000, as she had suggested, and yet another month passed, again without a single showing. Why couldn’t we get anyone to at least look at our home? Was this house a “dog?” HELL NO! It was picture perfect. It was in a prime beach location, in a quiet residential neighborhood, where everyone knows everyone. It was a corner lot, close to the state park and the beach. It had a two car garage, 3 nice sized bedrooms and central air. It has polished oak hardwood floors and a Florida room, deck and hot tub. The floor plan was open and very livable. The updated kitchen was large and spacious with lots of cabinets and Corian countertops. The house was beautiful by anyone’s standards; it was vacant, making it easy to show. But, for some reason, it just wasn’t selling, and I was getting more frustrated by the day.
After a third month with still no strong buyer interest, I asked my agent what she thought we should do.
It came as no surprise that she suggested we have the home professionally staged and lower the price again to 575,000, to attract a fresh crop of buyers (remember that it had been appraised 4 months ago at $625,000). This time however, I balked. I was frustrated. How could she say that we had a price problem when we had only 1 showing of the home? I told her we didn’t have a price problem, we had a traffic problem.
Because, I am a “tell it like it is” kind of guy, she was a bit taken back. Her next comment was, “Well if you have any great ideas, beyond what I’ve suggested, I’m all ears.” I was on the spot. I felt that the current approach was simply not working and that something had to be done. My mind raced. I knew if buyers could just see the house, we would sell it.
Eureka I’ve Struck Gold
And then it hit me . . . how were buyers ever going to see my house?
At this point the internet and online MLS was in its’ infancy. Every buyer all had real estate agents, mostly from the same “old fashioned network,” and their agents were helping them pick which homes to see. I realized that I was advertising to the wrong people. I needed to motivate the agents, not the buyers. I asked my agent what the buyer agent commission was. She said that we were offering a 2.5% commission to the agent who brought in a buyer. That is when I had what I refer to as an “AH-HAAA!” moment! I realized that we, meaning ME, were paying a total commission of 6%, with my agent receiving the big chunk of that commission! This was the reason no one was showing my home! After a little research I found out that most every home for sale offered a 3% commission to the agent who brought in the buyer, and ours was only 2.5%!
When I questioned her about this seemingly unfair split, she stated it was company policy to offer 2.5% on all listing contracts, with .5% going towards marketing cost (which meant to her) and the remaining 3% also going to her. I thought, “That isn’t very fair to a buyer’s agent. Why on earth would a buyer’s agent want to show my house when all my competition was offering a higher commission?”
I told her this buyer’s agent commission was unacceptable and I wanted to try bribery, yes, bribery!
What a great idea! A big smile came across my face. I told my agent I wanted to raise the price to 625,000 (where it had professionally appraised earlier) and leave a copy of the bank appraisal out on the kitchen table. Then I wanted to raise the buyer’s agent commission so we would effectively bribe agents to show the home. She hated the idea, thought it was unethical and would never work. I also said I would pay for the staging from her friend to the tune of $2,500, if she would hire a professional photographer to retake the pictures once the home staging was completed, at her expense, and produce a professional full color home pamphlet.
It was plainly evident that her strategy was clearly not working. I was the one making the mortgage payments on a vacant home. She reluctantly agreed to honor my requests.
And guess what happened? People miraculously started looking at the house the very same day the commission was changed.
Once the staging was done and the new photos were updated on the local MLS listing service, we got a wave of showings, one right after the other. As I predicted, we sold the home in less than 2 weeks from there. Guess how much? You guessed it! For the full $625,000! We were ecstatic! And I was relieved. Did I have a price problem? NO! I had a traffic problem. And we were trying to fix a traffic problem with a price solution.
Tips for Selling Your Home:
• Price alone does not sell houses.
• Agents also sell houses.
• If I wanted to attract buyers in droves, I had to attract agents too. It was really simple.
Was it a carefully devised marketing strategy? No.
It was a knee jerk reaction to the utter frustration of having the perfect home and no buyers. Like the analogy that if a tree falls in the forest, and there is no one there to hear it, does it make a sound? Honestly, it worked then, and it’s worked hundreds of times since then. It’s as simple as supply and demand.
Tips for Selling Your Home = More Demand + Fixed Supply = Higher Price
Did I get lucky? HELL NO! It wasn’t luck at all. It wasn’t a fluke either.
It was a basic premise of Economics 101 at work in my beachfront neighborhood. And it works in your neighborhood too. After that experience, I knew I had a secret weapon whenever I had a house to sell again. As it turns out, my family has a real estate brokerage in the Philadelphia area and I decided to give real estate sales a try after selling my interest in my former import and export company. I pulled out my secret weapon to sell my clients homes. The more I used it, the more I learned about how to maximize the results from it.
In the years since, I have tweaked and refined the Tips for Selling Your Home strategy until it is nearly perfect. And this very strategy – just as it’s presented here – made me one of the top 1% of real estate agents in the country in a few years. My clients sold their homes in about half the time, well actually 57% of the time, of the local market average, and after paying all costs (including the increased commission/ethical bribe) averaged nearly 3.9% more money, NET! WOW! Half the time while netting 3.9% more money! That’s the kind of result you should expect! Often much more using my advanced techniques, we’ll discuss later.
So as we get into my home selling strategy, I want you to resist the temptation to dismiss this approach as being market specific. It’s not.
Now that I have shared this approach with over 5,000 real estate agents around the world, I have sellers actually using it across the country in all kinds of markets to get the most money in the least time.
And as long as there are buyers and sellers, it works. It works in buyer’s markets, and it works in seller’s markets. It works in low priced markets, and it works in high priced markets. It works because the law of survival of the fittest works the same everywhere – just like the law of gravity.
Stay tuned for more Tips for Selling Your Home in Chapter 2
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