Carl’s real estate experience spans more than 10 years and includes a number of specialties including staging, general contracting, sales, and negotiation. He is a Trulia Pro agent and is active on Trulia Voices. He also writes for the Real Estate Reality column in the San Leandro Times and Castro Valley Forum. We asked Carl for his take on one of today’s most controversial trends. Take a look and let us know your own thoughts on the practice of using shock and awe ads to lure buyers to a home.
Classic real estate marketing relies on the 3 P’s: Preparation, Promotion and Pricing. The idea is simple: properties that are well prepared, marketed to the max and priced correctly will usually sell in a short period of time regardless of the market.
Unfortunately, the devastation that’s occurred in the real estate market over the past five years has soured many agents on the benefits of classic marketing and the 3 P’s, and many agents have concluded that classic marketing is a total waste of their energy and finances and they’ve thrown out the baby with the bathwater.
“Since,” they surmise, “at the end of the day a sale is really only about the price, let’s apply shock and awe to the price so we don’t have to market, we don’t have to pay any money for prep or advertising and … we’ll let the buyers set the price.”
There are five fundamental problems and reasons to avoid this dangerous tactic:
1. Deceiving buyers and sellers will lose you business
Buyers actually believe they have a chance at getting a property at the “advertised” price. With the shock and awe strategy, buyers are being deceived about true market values. A property should be placed on the market at a price that the seller will actually accept.
We recently submitted an offer on an investor flip priced at $325,000. It was a multiple offer situation – it garnered a lot of attention because the value was over $400,000. I was delighted when the seller accepted our contract at less than the neighborhood comps. Halfway through the transaction, however, I found out that the seller was exceedingly angry that their agent had managed to talk them into a shock and awe pricing strategy and consequently would not cooperate with us in any way. They wanted more money, the deal fell apart and, the home went back on the market … at $390,000.
2. Champagne or Beer: Buyers with mismatched tastes and budgets don’t close
Coupled with national media that convinces buyers we are in a “buyer’s market” when, in many cases, common sense dictates otherwise, numerous buyers end up spending time looking at homes that will sell for far more than their pre-approved budgets. In many cases, no amount of education by the buyer’s agent will convince the buyer that the price is fake – and more often than not, the buyer’s Realtor is made to look like a fool because they can’t negotiate a deal on the subject property for the advertised price. Some buyers, tired of the dance, end up discouraged and with no home at all, or switch agents, hoping the next one will work some magic.
3. Unrealistic clients burn agents’ time and resources.
Shock and awe advertising creates an environment where agents spend untold hours driving buyers to see homes they’ve no chance of obtaining and writing offers that will never be accepted. It’s building a tidal wave of frustration and, dare I say, anger in buyer’s agents. It also produces resentment in buyers who, when they finally understand that the prices they are seeing are totally “fake,” wonder why anyone with integrity would employ a tactic like that. And that, in my opinion, is a really good question.
4. Normal sellers suffer from wrecked property values
The vast majority of shock and awe pricing seems focused in the short sale arena. It was prevalent a few years ago with REOs, but, after this tactic started producing astronomically high numbers of offers, REO agents, overwhelmed by processing 50+ offers on any given listing, started to push back and ask for realistic pricing.
Since short sale agents only send one offer to the bank, they frequently don’t care how many come in. And once a short sale has an offer submitted to the bank, the artificially low price is stuck on the MLS – UNTIL THE SALE IS APPROVED. This could be up to a year, and the lingering “fake pending price” hampers many buyers from being realistic about true market values. They often don’t understand that banks will ultimately reject the lowball prices and sell the homes closer to actual market value. In the meantime, normal sellers find their realistically priced homes being snubbed by buyers who think the homes are priced too high. This in turn drives prices down, angering homeowners who believe they should be able to sell at higher prices.
5. Buyer’s agents lose their clients to the listing agent.
This is perhaps the most insidious aspect of this strategy. In a typical scenario, a buyer is alerted to a low-priced home through any one of dozens of real estate websites and asks their agent to show it to them. Their agent explains that it’s a “fake price” and will not sell for that price. The buyer then calls the listing agent, who offers to represent them. The buyer, thinking they may have a better chance with the listing agent, jumps ship – usually without letting their buyer’s agent know.
As an example, I visited a shockingly low priced San Jose home recently for an open house (which was absolutely packed), and the listing agent handed a form to everyone interested in making an offer. From what I could see, almost none of the buyers had their agents with them – and the offer form had to be submitted during the actual open house. The offer form had spaces for ALL of the buyer’s information AND asked the buyers to check a box if they were willing to allow the listing agent to represent them. It doesn’t take a rocket scientist to follow this scenario through to the end.
Shock and awe might work in war for a short period of time – until you run into a few zealots. Then its effectiveness is totally gone and all you end up with is a stack of martyrs and half the world turned against you. It’s the same in real estate – it might work for a while, but it’s a dubious practice at best with unlikely outcomes and deceit at its worst, especially when dealing with bartering zealots for whom obtaining a deal is a right of passage.
You be the judge.