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Friday, April 11, 2008

No haggle pricing...

I had a discussion with my broker, Dan Elsea, recently about the market and he passed on something that I found to be interesting. He said that a few agents have gone to a "no haggle pricing" approach in some areas and it seems to be working. What they are doing is essentially setting the price at the number that they think it will actually sell for and then offering it for that price and refusing to haggle on it. Apparently it's working for them, according to Dan. It's sort of the Saturn pricing and sales model applied to housing.

I was reminded of the time that my wife and I spent in Iran (back in the days of the Shaw). There was only one "fixed-price" store in Tehran, a department store that catered to Westerners. Everything else was sold in bazaars (see picture above of a Turkish bazaar) or small shops, where the fine art of haggling was an expected part of the process of buying anything. I recall haggling for hours just to buy a small carpet. The process involved elaborate acts of hospitality on the part of the shop owner and protracted negotiations over the price, sometimes involving us walking out of the store several times (only to be lured back by the owner's offer of more hospitality) and small price-change increments from both sides. It was sometime amusing and always time consuming, not unlike some of the negotiations that I've been through with houses. But, is was expected. In fact, it was considered to be an insult to the shop keeper if you paid full price and didn't haggle. We always took a local interpreter with us on these trips to the bazaar and took advice from him.

Some cultures are more accustomed to haggling as a way of life than others. In Iran they used to tell us that every shop keeper had three prices for everything - a local price that a native would likely pay, the price for buyers from Asia, who were known as good, tough hagglers and a Westerners price, which was usually much higher, since they knew that we didn't like haggling for long over something. In the U.S. we have garage sales where one can haggle and of course there is the time honored tradition of haggling when buying a car (except a Saturn), and then there are our home sales.

Most sellers always want to build "wiggle room" into their prices; room that they feel they can negotiate with when an offer is made. The mistake most make is to put the price too high, with their wiggle room baked in, and so they discourage buyers from even looking at the property. If your Realtor tells you the market price for the house is $180,000 and you put it on the market for $200,000, or more, you will just be missing a good part of the potential market.

I really can't figure out why we can't do something like this everywhere. There just seems to be some innate need to haggle when buying a house. I know lots of people who don't like to haggle and would likely prefer a good, honest fixed price on houses, just like there is on other things. Therein lies the rub - getting a good price and an honest price. Who's to say what is a good price? And, how do you determine that this is an honest price? I've been advising potential sale client to get an appraisal up front, so that they know what the current market value for their house is and can set the price accordingly. Even dong that is no guarantee that the market won't change again and the price will be off again. Appraisals that are over 6 months old are pretty worthless in the current market.

One thing working against this model is the conditioning that buyers have had from the current market. Buyers are now used to offering only 85-90% of the listed price for homes (sometimes less) in hopes that the sellers are desperate. There is so much inventory on the market that buyers feel that they can just go find another similar home if the seller doesn't take their low-ball offer. I've had more than one potential buyer tell me that their strategy is to just keep throwing low-ball offers out until someone takes one. It's usually not any fun working with those people, since we spend a lot of time finding candidates for them to low-ball and then almost always get rejected.

So, should you try the no-haggle approach for selling your house? Only if you have the discipline to stand firm on the price and the patience and perseverance to put up with the low-ballers who will still try to get it for less. Make sure that your agent makes it clear in his/her marketing that this is your best and final price; and, make sure that it is a good and honest price for the property. Remember that the market doesn't care what you "need" for the place, either to pay off the mortgage or to give you some equity to invest elsewhere. The market is cruelly efficient at determining what your house is worth and at not paying any more than that; so, price accordingly. Otherwise welcome the bazaar that is the real estate market today (some would say bizarre). You'll need a good interpreter (Realtor) to help you with the haggling. Call me. Been there, done that!

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