In order to sell anything, you have to create demand. Not only do people have to know its available, but they need to have a desire for the product. There must be a demand for the product you are trying to sell.
How do you create demand? You have to create demand through scarcity. People have to value your product and beleive that your product can’t be had anywhere else. Now, there are tons of variables here, especially when if the product you are trying to sell is condos. For instance, one has to consider not only price, but the quality of the resort. One must consider the possibility of replication and whether they can get something of similar perceivable value for a lesser price in the same general area.
4 years ago, developers and sales teams created scarcity through having a unique product that wasn’t overly prevalent. Of course, the frenzied market helped the sales stories along when buyers were turned away because developments were sold out. Today, scarcity is created by offering a unique product that can’t be had anywhere else, or a product that is superior in quality.
For real estate today, how do you create scarcity with a surplus of inventory available? You create scarcity through value. If you want to sell real estate today, you have to be the best value on the market, with value being determined by a delicate balance of the quality of the product and its price. Of course, one has to keep in mind that as unique as a property may seem to the developer, sales agent, Realtor, etc., there is always something that is equally unique available on the market to most people.
Ok, so say you have found that sweet spot in the world of pricing. Let’s throw a number out there, say, $250/foot – you are successfully selling your condos for $250 per square foot. There’s not a frenzy, but you’ve got a steady stream of interested people and you actually have 10 or so contracts in the pipeline. What should you do? I mean, there’s demand, you don’t want to risk leaving money on the table right? Maybe you should increase the price of the existing inventory just to be sure, right? Wrong!
You’ve found something that works, you’ve done something right that has had a positive result. What you were doing was successful. At this point, if you change, then the result of that change will be different than the result of what you were already doing, and that’s bad. The result of what you were already doing was that condos were selling, if that changes, then that means that condos are NOT selling – and that’s NOT good.
Here’s the kicker. As soon as you raise the price, you lose the velocity that you had when the price is right, and quite possibly, sales may have halted all together. The real problem comes in when all of a sudden, sales have stopped, you scratch your head, and all the while, prices are still coming down, week by week, month by month. Not only that, but your credibility has been tarnished a little. The buyers that were looking at your product aren’t that interested anymore, they are looking elsewhere to see if there’s a better deal (and there’s always a better deal, in this market).
Then, suddenly, it hits you. You realize that when you raised the price, that’s when your velocity slowed, so you decide to put the prices back to where they were. Condos aren’t selling at $250 a foot anymore. Uh oh, what’s that sweet spot now? Well, it’s at $230 a foot, you just lost $20/foot AND time. You disrupted your velocity and it’s going to be hard to get it back. Things were starting to roll forward, increasing their pace, rapidly, but you stopped it wanting to maximize profit, but what happened? You ended up losing more money, tarnished your credibility and wasted a lot of time, which equates to more money lost.
Hey, I’m no different then the next guy. I don’t like to leave money on the table, but in order to survive in today’s market, you have to have your long-term glasses on. You have to look into the future and realize that prices may still be falling, you have to expect that, you must anticipate that condo prices will not increase for the foreseeable future.
With that said, if you happen to find a price that results in sales, then you have to sell as many as you can as fast as you can. A great lesson can be learned here from large-scale condo real estate auctions. When the auctioneer finds the sweet spot in pricing, he doesn’t sell ten, then raise the price. He knows that if he does, everyone will just leave. If you find the sweet spot in price, you have to sell as many as you can as quick as possible and be glad its over. Otherwise, you’ll be sitting on inventory that not only costs you money, but prevents you from making money too.
What’s the old adage? If it ‘aint broken, don’t fix it.