It appears that Coldwell Banker may be following the Walmart approach to real estate pricing – recommending that sellers cut their home prices 10% across the board – not locally, but nationwide. I can’t help but find the similarity to the McCain approach to cut government spending – simply freeze spending across the board.
Shouldn’t price cutting be done with a scalpel-ly machete? Pardon the pun, but in many cases 10% doesn’t cut it.
I had a very difficult discussion today with the developer whom I represent regarding a new and very aggressive pricing strategy for their condominium project slated to deliver just about when the snow flies.
New lending guidelines regarding new construction could potentially crush them – even with units under contract, no potential buyer can close without at least 51% of the units being under contract – we’re not even close. While Chicago may be a stable market per Fannie Mae guidelines, in light of the recent Wall Street meltdowns, I suspect the we may be in a declining market faster than you can say bailout.
If they don’t get aggressive quickly, we as taxpayers may just be owning 8 stunning, uniquely contemporary condos. My recommendation was a bit more dramatic – depending upon the units, as much as a 15% price cut. They didn’t take it well. They “hoped” to get the prices we had established – they forgot the second half of the word – “less”. The good new is – we have time to thoughtfully approach the pricing strategy.
If we aren’t having the tough conversation with our sellers regarding pricing – okay, I’m going to go there – aren’t we like Congress, complicit in extending this housing market nightmare by not doing what we’re paid to do – provide knowledge, expertise and guidance? While I can’t completely fault the strategy that Coldwell Banker wants to deploy, where did 10% come from exactly?
As far as I’m concerned regarding my own client’s situation, the comps matter significantly less than current lending guidelines do. If mortgage money for conforming loans is still relatively plentiful to the well-qualified buyer, my client’s units need to fall well within the conforming lending range. In addition, I am not concerned about what the new comp unit sold for 2 months ago – the lending guidelines in effect 2 months ago no longer make that last deal possible.
Yep – I know – sellers don’t listen. If they don’t listen, you need to ask yourself – why are they still your client?
J Boyer Morristown NJ says:
Thomas, those are difficult conversations for sure. I have to wonder what the builders profit margin is on those units. Not that it matters one bit as far as getting them sold. I sold the first condo in a 20 condo building this summer. My client just had to have it, though we did bargin hard anyway. I am about 99% sure the builder lost money on the deal. Since then they have sold only 3 more for similar prices.
Good luck with your builder, I am sure there are more difficult conversations to come with them.
October 9, 2008 — 4:19 pm
Tom Vanderwell says:
Hey Thomas,
I’ve been spending a lot of time working with developers trying to get those type of condo issues taken care of. Give me a call some time, I might have some ideas for you, but it’s been a body blow to the condo market.
You are absolutely right about the 2 month issue.
Tom
October 9, 2008 — 10:38 pm
A Catt says:
As for Coldwell Banker, you have to hand it to them for getting some nationwide attention and publicity, not to mention, plenty of free advertising.
On the other hand, 10% off what?
October 10, 2008 — 9:19 am
Keahi Pelayo says:
Excellent analysis! Comparing CB to Walmart is great insight.
Aloha,
Keahi
October 10, 2008 — 12:25 pm
Smithers says:
“Yep – I know – sellers don’t listen. If they don’t listen, you need to ask yourself – why are they still your client?”
I’ve put that question of a lot of Realtors(R). the most honest response seems to be that they are hoping the seller will eventually come to their senses, and they are willing to put up with an un-sellable listing in the meantime. A very successful (I guess) agent told me he specializes in taking over listings after 6 months or a year or so, when the seller is willing to cut the price significantly. He says sellers often want to blame the former agents instead of themselves, and so he does not want to be the “first” agent for the go-nowhere wish pricing phase.
I have no idea how often that really happens. I would guess it’s a sore spot as between agents if it does happen.
October 10, 2008 — 12:45 pm
Miami Real Estate Attorney says:
Developers need to sell enough units to payoff their loans, or at least bring down the debt service. It hurts the ego to sell some at a loss, but has to be done, or they will end up in bankruptcy.
October 10, 2008 — 12:46 pm