In a previous life, I worked for Circuit City, which used to be an “electronics superstore”. Circuit City guaranteed the lowest prices, and they were very good about upholding this guarantee. But consumers didn’t fully “get it”. For instance, there was a certain VCR (remember those?) made by JVC that Circuit City sold for $349 regular price, and $339 sales price. Now, I know, that right away, you’re thinking “wow, that’s not much of a sale – just $10”, right? Well, you would not believe how many people would bring in competitor’s ads asking us to beat the advertised price (which we did). The worst was Sears. Customers would bring in Sears’ ads for the exact same VCR, and the ad would say “$498 regular price, $349 sales price”. Customers thought “wow, I’m saving $150”, so they’d be mad when our sales price was only $10 less. But notice that Sears’ sales price was the same as our regular price, but the PERCEPTION was that a consumer was saving so much more at Sears than at Circuit City – that they were getting a real deal! Psychology can be a strange thing!
So, how does that relate to real estate? Just like in retail, buyers want to think they’re getting a “deal”. Often times the actual price of a home is negotiated. Depending on the market, the seller may or may not get their asking price. But, the difference is that, in a house, price negotiations are usually taking away from the seller’s equity in the house – and that’s “real money”. We determined earlier that the list price of a house needs to be very close to the actual market value of the house, not inflated like Sears did on the VCR. And, a seller’s equity in the home, by definition, is the market value of the home minus the amount that’s owed on the home. So, if a seller sells for less than market value, that really is money that they are losing (or, it might be better to say that’s money that they could have kept in their pocket). When a buyer makes a low offer, they are actually asking the seller to give them some of the seller’s money, too! That’s why, oftentimes, sellers get upset with low offers. Make sense?
Home selling is usually a very emotional experience. Sellers are giving up a place where they may have lived for years, and, hopefully, they’ve had many wonderful memories. They’ve already agreed to give those away. Then they get buyers to ask them to give money away. How does that sound?
Bottom line, while we all want to “get a deal”, we really need to be fair. Reverse the roles. If you’re a buyer, consider what the seller is thinking. If you’re a seller, consider what the buyer is thinking. By doing this, we can usually end up with an easy transaction that works for everyone.