[5-DayForum] Prices Jump When Auction Minimums Drop
Helen Ash
helen at kjadesign.com
Wed Jun 13 11:58:31 EDT 2007
Maybe it is just me, but now I am getting confused. You write:
I am sure that anyone can get double their starting price if they start low enough.
Well, yeah, that makes sense! If you start really low, you can even triple your starting price ie) 150,000 starting price. If we go down to 250,000... I am more than confident that we can more than double that. I am not sure that will hold true with the 299,500 price that you suggest using the magic ending formula.
And the one thing I'm absolutely certain of is that you can't start too low.
Of course, you can start too low. Let's use us as an example. If we list at 250,000, do you really think that we can more than double that number and get to close to 600,000???
The more I read, the more confused I get! :(( Mixed messages are definitely being sent. I am getting somewhat frustrated...
Helen
----- Original Message -----
From: Bill Effros
To: How To Sell Your Home in 5-Days
Sent: Wednesday, June 13, 2007 10:21 AM
Subject: [5-DayForum] Prices Jump When Auction Minimums Drop
Helen,
There isn't that much I'm sure of, but I am sure that anyone can get double their starting price if they start low enough.
The first time I ran a five-day ad, it never occurred to me that people would offer more than the starting price. They did, but I never saw it coming.
Over the years, and please remember I have been actively involved in 5-Day Sales for more than 15 years, I have tested every theory you can imagine.
And the one thing I'm absolutely certain of is that you can't start too low.
I could offer my home here in Greenwich for 12-cents or best offer -- and still get substantially more, in five days, then the Zillow estimate of more than $2 million.
The pattern to 5-Day Sales is exactly the same whether you are selling a car for $100, or a home for millions.
The absolute minimum number of responses you should even consider is 25 by Friday night. That assumes you have been running the ad only on Wednesday, Thursday & Friday.
You should be able to roughly double the number of responses received by Friday night by Sunday night.
Within each 50 responses there should be three "real buyers" ready willing and able to buy your home at the fair market price.
If you attract 100 responses, there should be six real buyers.
If you attract 150 responses, there should be nine real buyers.
But these additional real buyers won't increase the selling price far beyond the highest price offered after a round robin that includes three real buyers. Once the bidding goes beyond a certain point, all buyers know they can buy a more expensive home for the same money, and all nine, if you have that many, will stop bidding. You will have more backup, but you won't get a substantially higher price.
Soliciting the opinions of the 47 people out of 50 who are not real buyers, will not convince the three real buyers to bid more than they feel your home is worth.
Determining that you have attracted 47 unsophisticated buyers who honestly believe that they can buy your home for 50% of its value does not help you, and does not help them. We know they will come to your home. We know that they will hope and pray that nobody tops their bid. We know that they will enter low bids, even after others have submitted higher bids. We do not base our understanding of fair market value on the opinions of people who clearly do not know the fair market value of your home, and obviously lack the means to buy it.
Your home is worth whatever real buyers will take out of their own pockets and put into your pocket.
No, Lora, Kimberly, and Steve's experiences were each substantially different from yours. Kimberly started too high, and she knows it. Steve also started too high. He barely got 25 responses by Friday night. His only real buyer was someone who had seen the home before, who refused to bid any more than he had bid before. Because he is a builder, and this is a brand-new house that has never been sold before, it's in a completely different category than you and your home. Lora has two bids more than twice her starting price. She allowed potential buyers to see her home without coming to it, which complicated the bidding process.
I have no idea of the true market value of your home, but I believe you are less likely to get it if you run another 5-Day Sale at a higher starting price.
I can't remember a single instance in which this strategy has worked. I have seen it fail repeatedly.
If you truly believe your home is currently worth substantially more than the $510,000 you have been offered, you owe it to yourself to try a strategy that has the possibility of working.
Offer your home for what you think it's worth. See if anyone bites. Offer it yourself, or offer it through a broker after adding the brokerage commission.
But, yes, I am worried about people who don't employ the method properly, and repeatedly refuse the highest offers they can get.
The rate of success depends neither on the region, nor the state of the market. It depends on how closely people follow the book. Starting higher in an attempt to get a higher bid has been consistently shown to not work.
While this may seem counterintuitive to you, I have seen this over and over. Others have noted it also.
Following is a story from the AP wires that ran last month. "Prices Jump When Auction Minimums Drop" It reports the same conclusions I have drawn in a different context. Maybe I should post it once a week for newcomers to the list.
Bill Effros
Prices jump when auction minimums drop
By RACHEL KONRAD, AP Technology WriterWed May 16, 2:36 PM ET
Most auction sites let sellers set a "reserve" price under which they are not obligated to sell the item. Sellers are assured they won't have to unload their item at a loss; sites make more on their commissions with such minimums.
So PropertyRoom.com took a big risk when it dropped the reserve-price option and started all bids at $1. But the move yielded surprising results: the average price increased 30 percent and the average number of bidders per item surged 50 percent.
"The board of directors was biting their fingernails," said P.J. Bellomo, the company's chief operating officer. "But more people keep showing up."
The site, which sells items seized or found by police departments nationwide, quietly began informing sellers about the change earlier this year. The change covers nearly all items, including diamond rings, computers, coins and Rolex watches.
The company also has a no-reserve format for automobiles, but police departments may set the opening price higher than $1. Bellomo said the company may soon require $1 starts on cars, too.
Amar Cheema, a marketing professor at Washington University in St. Louis, said PropertyRoom.com bidders probably think they're getting great deals - even though they're paying 30 percent more than before.
"When an individual is looking at an auction and they know there's a reserve price, it discourages entry," said Cheema, who studies consumer behavior and auctions. "Because there is no reserve, more people are likely to enter, and when you have more people entering the bids go up."
Helen Ash wrote:
Bill,
First, let me say that we believe in the process. Based on our experience, we believe that the process pulled in at least 3 real buyers. We agree that the lower the price, the more people you pull in. What we do not believe is that this number will pull in buyers who can afford to pay twice as much. Our serious buyers all told us that when they saw the 319 price, they thought they would be able to get the property at around 500,000. We were looking for the buyers who would go up to 600,000. We live in a very desirable neighborhood with houses selling in the 800's on the high end. Everyone knows this and a lot of the people who showed up were really expecting to find a fixer upper; they viewed it as an opportunity to get into a great neighborhood at a price they could afford. Our home is in pristine condition, well maintained and tastefully decorated. It will sell for more than 510,000 (our highest bid) and the buyers who showed up, knew that.
It appears, based on the emails shared here, that Lora, Kimberly and Steve experienced the exact same results we did. Would you not agree? Does it not make sense to reevaluate the formula? Is there data to support that using a higher number will not work?? Someone had mentioned graphing all results and posting it on the website. I think that this would be invaluable!!
We are not going to list with a broker. Should the house not sell within the next few weeks, we are going to try and run another 5Day sale using a higher price in the ad. We are not going to go lower than 319 although I know you advise us to do so. We will keep you apprised of what happens. FYI... there were 2 other 5Day sales in the area this past weekend. It is my understanding that the sellers of those homes experienced similar results to ours. My one concern is that if we all continue to not honor the HIGHEST REASONABLE BID or BEST OFFER verbiage, the 5Day sale process will begin to lose its credibility. And that would be a shame because we truly believe that it is a brilliant idea. However, it appears that its rate of success varies by both region and by the perceived state of the real estate market. Adjustments to the process need to be discussed and examined. I believe this is imperative to ensure its continued success. I would love to see this process used more and more in the future and I will do my part to get the word out.
Congrats to Kimberly and Lora!! Hope that things work out for both of you!!
Best,
Helen
----- Original Message -----
From: Bill Effros
To: How To Sell Your Home in 5-Days
Sent: Tuesday, June 12, 2007 10:32 AM
Subject: [5-DayForum] The Butcher Joke
Helen,
A woman goes into a butcher shop and asks the butcher,
"How much is the porterhouse steak?"
"$20 a pound."
"But the butcher down the street is selling it for $10 a pound!"
"So why don't you buy it from him?"
"He doesn't have any more."
"When we don't have any more, we sell it for $5 a pound."
Selling your home is not about what someone else got for their home at another time.
The current price of your home is not what someone who can't afford it thinks it ought to be.
$319,500 is not a magic number. You would have done better had you started your home at $299,500.
If you use a higher number you will do worse.
Do not run another 5-Day Sale in the near future. If you are sure your home is currently worth well over $600,000, offer it through a broker at $650,000. Sign a contract for a time period as long as you are prepared to wait. Make sure your contract states that you do not have to pay to the broker anything after the end of the contract, even if the eventual buyer previously inspected your home with the broker.
If you get $650,000, sell.
If you don't, run another 5-Day Sale. Start at a magic number 50% of a price you now know you can get. Follow the book exactly. Sell to the high bidder.
Bill Effros
Helen Ash wrote:
Thought I should share our results too. Sounds like our sale followed the same pattern as everyone else's this past weekend.
We had 12 bidders, 3 of whom were HOT!! 3 more were very serious too. Price in ad was $319,500. First bid was $450,000 and was placed on Sat am at 10:45am. High bid before RR was $500,000. After Round 1, only 3 bidders were left and high bid was $510,000. Other 2 dropped and that was and is our high bid. No one can convince me that this is FMV. Two homes in our neighborhood which are much smaller and offer less, both sold for more than 510 in the past 60 days. Our bidders each told us that they loved the house, but that they knew it was worth more than 510,000. Two of the bidders even cried on the phone (I am not making this up) because they were soooo disappointed. I did get on the phone with our highest bidders after we were all done to tell them that we could not accept the high bid and I also asked them some questions which I hoped would shed light on why this did not work as well as it should have. What drew their attention to our ad? After they saw the property, what did they think the house would sell for? They all said that they thought the house would easily go for over 600,000 IN THIS MARKET!!!! One family even brought back an uncle who offered to help with financing. We have pored over and analyzed our data and we feel very strongly that had we used a higher number in the ad (perhaps 399,500) we would have attracted a better buyer pool. We are convinced that the 319 number just did not bring in the right people. That being said, how long do we have to wait to try this again if we tweak the wording in the ad and use a different phone number? We did have a few people attend our inspections who felt they were being scammed because we wasted their time by using such an artificially low number to bring them in.
Needless to say, we are extremely disappointed in our result. I have not felt this exhausted since the birth of my last child. I feel like I just went through 3 days of labor!!!
Looking forward to hearing everyone's feedback.
Helen
----- Original Message -----
From: Kimberly Gildroy
To: How To Sell Your Home in 5-Days
Sent: Monday, June 11, 2007 12:23 AM
Subject: [5-DayForum] Sale in Edmonds, WA
Our sale did not work out as far as the high bid being the fair market value. We had only 7 bids, we thought four were serious but they did not go far. The one that is actually serious didn't want to be involved in the RR and wanted us to just call him when the rest of it was done, but he did make a bid when I asked him to stick to the rules. Then, everyone else dropped out or wasn't home and didn't call back in the half hour I set in the rules in the next round, so he ended up being high bidder at a price we cannot afford to sell the home for. My husband is talking to him right now and it seems to be going well. We apologized profusely that we could not sell the house for this price, as we just cannot afford to. We are embarrassed mostly because we know he is a straight shooter and really wants the house and I asked him to stick to the plan but now we cannot financially afford to do so. He may be buying the house for $70,000 more than his top bid, but the bidding process itself did not get up to the fair market value.
We had a TON of calls, a lot of people today saying, "great, I'll be there this afternoon," and only two people showed up to look all afternoon. Today was horribly stressful until 5 PM finally hit, then I was relaxed until the bidding process which took about 15 minutes and was done with an extremely low bid, and then it was very stressful, and my husband, who is a great diplomat, has smoothed things out, but quite an embarrassing experience.
At this moment, am too tired to try and figure out what might have gone wrong, I just want to rest and let myself get through the emotions.
Kimberly G.
Edmonds, WA (Seattle area)
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