Would A Dress Store Do A 1.5% Off Sale?

March 4th, 2010

I saw a house recently that was priced at $659,000. This house had been on the market for 60 days, with no offers, at $659,000. I noticed that they did a price reduction of $10,000 to $649,000 after they were on the market for 60 days. And this begs the question, “is a ‘1.5% OFF SALE’ going to draw buyers into the store?”

I believe a $10,000 price reduction is a slap in the face to the marketplace, to potential buyers, and to logic. If the house was not worth $659,000, guess what, it ain’t worth $649,000!

Now, if you got some offers at $659,000 that you were not happy with, but they were around the $620’s or $630’s, then a $10,000 reduction from $659k to $649k may be a good strategic move to signal to the potential buyers that you were willing to come down some, if they are willing to come up some. But if you have not even had offers after 60 days, clearly the market is signaling to you that the house is more vastly over priced than 1.5%.

I think if people thought more in terms of percentages, and less in terms of dollars, real estate would sell more quickly. I know $10,000 sounds like a lot of money, but relative to a $659,000 asset, a $10,000 price move is insignificant. I know dollars are hard to come by, but a $30,000 price drop that is advertised as “significant” on a $1,800,000 house, is not as significant as it sounds. I know $30,000 is a lot of money, and can buy lots of things, but its not a significant price drop. We all need to take a harder look at percentages. A $30,000 price drop on a $420,000 home, to a new price of $390,000, now that is getting more significant.

If you were selling $2 lemonade on the corner in a tough economy, and people were passing you by to instead go home and drink tap water, would you think a price drop to $1.97 will suddenly make people want to open their wallets for your lemonade?

If you were selling $5,000 wedding dresses in a down economy, would you really expect a new price of $4,925 to make people buy?

These are 1.5% price drops, and I hope it makes the point of how silly it is to drop a price of something you are selling by 1.5%, when there was no interest at the original price.

And this theory also works the other way too, where buyers have to realize making slightly higher offers to outbid someone else, if there is competition for a home they are interested in, is not the end of the world. To bid 1% to 3% more for a property than you had originally planned to, if you are in a competitive situation, is not as huge a financial pain as you think, when measured properly in percentage terms.

Brian Martucci is a loan officer for Capital Bank Mortgage, a division of Capital Bank. He has been in the mortgage industry since 1986 and has served in a number of roles, including loan processor, loan officer, mortgage broker, branch manager, and vice president. Brian Martucci – NMLS# 185421. His opinions do not necessarily reflect the opinions and beliefs of Capital Bank Mortgage or Capital Bank.┬áCapital Bank, N.A.- NMLS# 401599. Click here for the Capital Bank, N.A. “Privacy Policy”.

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