Friday, November 23, 2018

Really? A $1 Price Reduction?

Price changes are often a part of marketing a property. However, there is supposed to be a solid reason for showing a price change which helps agents and potential buyers to consider a property they might not have to that point.

Reasons for a price reduction for a home are often, and are supposed to be, well thought out, even if they are only for a few thousand dollars.

For example, let's take a house initially priced at $207,000. Part of the strategy for this price could be that someone searching in the $200,000 to $225,000 range from "low to high" would see this property ahead of similar homes priced closer to $225,000.

If this price point is not successful after several weeks, the listing agent is likely to reduce it by $8,000 to $10,000 in order to show it listed for under $199,999. The reasoning is that by doing so, this house would now appear in searches of under $200,000 instead of over. This reduction of less than 5% is designed to open up the marketing potential to a "new" group of potential buyers.

However, the amount of a price reduction also plays a factor. Think of those times you are in the grocery store and see a "Sale" sticker on an item you regularly purchase. Then you see that the item you usually purchase for $1.79 is on "Sale" for $1.69. Saving ten or twenty cents on one or two of the items doesn't thrill you to the point of calling your friends to let them know of this sale.

Over the course of Thanksgiving day, this unit in downtown Chicago, which has been on the market since August (3 months earlier) showed up on the "Price Reduction" list the next morning. The fact that the next morning happened to be Black Friday, the biggest sale day of the year, seemed like a solid marketing approach, since properties are for sale, too.

Imagine the shock upon discovering that this home was reduced by a grand total of (Are you ready for this?) $1.00. Yes, all the way down from $180,000 to $179,999. 

Oddly enough, despite the Black Friday approach, only one other downtown Chicago property showed a price reduction on Thanksgiving. However, the other listing, which is located a few blocks from the $1 reduction, posted a $40,000 price reduction.

In other words, the agent representing the $1 price reduction took a good idea (a Black Friday reduction) and wasted the time of other agents and potential buyers. The savvy agents are likely to remember this agent and might not bother to look at his future price reductions. At the same time, it's hard to believe that the seller is jumping for joy about the prospect of chipping in $1 toward getting their property sold.

Their $1 didn't even buy any favorable publicity.

(Here is the link to the listing)

Wednesday, November 21, 2018

Tulsa Marketing Strategy Not OK

The city of Tulsa just joined a list of cities offering incentives to gain new residents, with their approach of offering $10,000 to 'employees' who move there.

In theory, this would attract attention. However, as we know in real estate, attracting attention isn't always a positive, while this is an industry that needs a lot more positives from day to day.

CNBC's story about this provided details about the requirements, which were clearly not well thought out.

Their concept is that its "Tulsa Remote" Grant program will pay an employee $10,000 over the course of one year for moving to the city or County of Tulsa, and work remotely for an out of area employer.

From a financial standpoint, the structure doesn't make sense. The first part is a $2,500 "relocation fee".  By the time someone from a long distance away deals with moving expenses, that amount could be gone and then some.

That amount does not take into account a security deposit or 'last month' rent on an apartment, and certainly is zero help when it comes to a possible down payment on a home.

Remaining funds would be paid off at $500 per month with a "final" $1,500 check at the end of the one year period. It is difficult to determine whether this would be enough of an incentive to keep someone living there for one year if they wind up not liking the city.

However, this program was put together without considering the marketing and real estate impact this publicity stunt gives. From here (well outside of Tulsa), this is NOT a well thought out approach. And how the $10,000 is paid out has no bearing either way.

First of all, those who are skeptical will take the approach of "They couldn't pay me enough to live there!" and see this as desperation to attract more residents.

Employees that work remotely often do so because of family or other personal considerations and are not able to relocate. Employers may not wish to have remote employees work beyond a certain distance or out of area regardless of performance

More importantly, the real estate aspect of this is all wrong.

If Tulsa wants to increase the population and the economy, this offer should be coming on behalf of employers in the area. A "Get Hired by Tulsa Business and Get $10,000" Campaign would spur activity for this Grant.

It might also lead to more employers wanting to participate, and perhaps building or expanding their office, store, or factory to or within Tulsa County. Which, of course, means more commercial development and helps the local economy.

This was not well thought out. Or, it could be that they don't want to pay out any money, thinking that this will be a favorable publicity stunt. They seem to have overlooked the "favorable" part.

Here is the story: