Pulse Of The Market (Pulse 68 - Amateur Psychologist)
May 11, 2009
My friend Michael, his wife Joan and 15-year old daughter, Maggie, were in New York for a few days and were shopping at Barney's. Everything in the store was on sale. Maggie liked a coat marked down to $1,000 and asked her dad what he thought. "Go back and ask them what their best price is," suggested Michael. Although this might not be the approach most people would take with a major retailer in the U.S., Maggie took her dad's suggestion. The sales person was willing to knock $200 off the price, and Maggie got the green light to buy the coat.
A colleague with some 4,000 apartments in several buildings usually budgeted 5% vacancy. Recently he wanted to get aggressive with the renting of available units and stem any rise in the vacancy rate. So he put the word out – "I've got a new deal – come see me." Here's the deal. "Sign up, and if you lose your job, I will carry you for four months." The word gets out fast, deals are made; people want to rent in his buildings, because they know that this guy understands their situation, and he cares!
If I project the number of condominium and single-family homes sold in San Francisco for all of 2009 by annualizing the sales from the quarter just ended March 31, 2009, the resulting estimate is that 2009 will be off some 40+ per cent from the total sold in 2008. People are still Waiting for Godot (see January 2009 Pulse).
Maggie didn't really need to buy the coat. But she did because it fit her needs and she felt that she had a hand in creating the transaction. It wasn't enough that the store had offered a healthy mark down. That management decision did not involve her and it didn't necessarily mean that she was getting good value. However, her actively asking for a bit more, did. Here's the point. The only way a buyer will believe that they are getting a deal is by feeling that they created it. The words believe and feeling are not in our rational economic lexicon, but they are very powerful emotionally. And these demanding economic times are nothing if not emotional.
In the residential real estate market, the fear of making a mistake is trumping the fear of missing a deal or missing the bottom. To counteract inertia, it has to be more than just a low price. The buyer needs to feel that he or she is involved. They want a sense of control and something they can trust. This is where the developer of a multi-unit building in SOMA has a big advantage over an individual who is re-selling his or her condominium or single-family home. Without naming names, some developers are playing it smarter than others. As a buyer, which opportunity might better get you over your fear of making a mistake?
- Option A: This developer announces that their prices have been reduced a dramatic 20%!
- Option B: This developer spreads the word that great deals are being made.
The price opportunity may be real in Option A, but the buyer is not involved, particularly if the developer sticks to the advertised 20% price reduction and will not negotiate further. The seller created an endgame with an outcome they already know and accept, so maybe it's not "the bottom", and the buyer can never be sure. Option B asks the buyer to be involved, and contribute to a dialog where the buyer's participation matters and the outcome is still unknown and can be influenced. The more a buyer feels he/she matters the more their fear of making a mistake recedes.
In this economically challenged environment, the individual re-seller is at a comparative disadvantage. He has emotional skin in the game and is attached to just one outcome: the developer isn't. The re-seller has only one property to sell, and if the buyer doesn't like it, he has nothing else to offer – not like the typical car salesman – if you don't like this blue model, how about the red one? So it is with the developer – if you don't like the one-bedroom unit with a view, how about the two-bedroom for the same price? Consequently, the individual seller has to connect with an agent who is not only on top of his/her game, but the seller has to really trust that agent when the agent proposes a marketing strategy and a list price that causes heart palpitations at its very mention.
The reason I mentioned the apartment building owner is because a basic economic truth is that people are going to do business with people whom they care to do business with. It's human nature to want business to be personal and to want to feel acknowledged. Doesn't it feel good when a merchant remembers your name, and even better, remembers what you like? We are all seeking some form of personal connection, even in our daily business lives. When it comes to a real estate transaction that is probably the largest we are likely to ever make, it's even more important for the seller to help the buyer cross the gulf from fear of insecurity that they may not be doing the right thing. Sometimes that gulf is pretty wide and deep, which means that the assistance needs to be generous. In an economic climate where there is such fear of making a mistake, making it personal and being of service is truly a competitive advantage. Then you don't need to worry about making that one sale because word will spread.
Written by: Malcolm E.A. Kaufman
Starboard TCN is posting this article on its website and blog with Malcolm E.A. Kaufman's approval.
Malcolm E.A. Kaufman is Top Producer at McGuire Partner. He refers you to his website, http://www.sfpulseofthemarket.com/, where you can see recent issues of Pulse of the Market© and learn more about him. He invites your comments, suggestions, and questions.