The Three Bears of Pricing – When Logic Goes Out the Window

By Paul Christian Breden January 28, 2014 from LandThink

We all remember the story we were told as children about the Three Bears. – right? When the girl enters the home of the Three Bears, she finds three choices. One bowl of porridge was too cold, one was too hot, and the other was ”just right”! One of the chairs was too hard, one was too soft, and one was “just right”! One of the beds was too large, one was too small, and one was “just right”!

When selling land, there are also three choices: 1) the asking price, 2) the offered price, and 3) the selling price. As with the three bears, the first is usually “too high”, the 2nd is “too low” and the 3rdis “just right”! But why must there be three choices, when it would be so easy to set the “just right” price from the very beginning.

Sellers tend to use several resources to arrive at their asking price. – the price that is usually “too high”. First, they may pick an asking price based on their personal financial needs, i.e. to pay off a loan, send a child to college, or take a dream vacation. This is certainly not a price based on reality, comparable properties, or factual sales data.

Another resource might be friends and neighbors, who are always glad to render an opinion, as in “Why – neighbor John got $5,000 an acre, and mine is nicer than his, so I’ll ask $6,000/acre.

Finally, the owner may call in a real estate broker for an opinion. This should be the best choice. After all, who better to ask about price than someone in real estate? What the owner may not realize, however, is that most brokers sell homes – and few specialize in land. Thus, the information received relative to setting an asking price ends up based on a residential broker’s “opinion” – rather than on an in-depth analysis of actual land sales.

In the end, Sellers being Sellers, the asking price is quite likely to end up “too high” – and far beyond a price that would attract interest, phone calls, showings – and a sale.

Next comes another facet of the “Three Bears” – the “too low” part. Buyers, in today’s real estate market are of the opinion that because of the 7 years of Recession, all sellers are willing to sacrifice the value of their property in order to put food on the table for their family. This, for the most part, is a fallacy.

Nevertheless, because buyers generally do not have access to land sales records, they also do not have the knowledge required to recognize a fair price. With this absence of knowledge, they tend to “shoot from the hip” and hope the seller won’t know the difference either.

Then there’s the “just right” price – and the results are almost magic. Using a variety of information resources, a land specialist  should be able to accurately nail down an asking price at which buyers are likely to offer full price. Property owners who employ a specialist, and who act positively on the broker’s advice, are the ones most likely to net the absolute maximum price the existing depressed market can deliver.

Recent history in this North Carolina land market yielded 15 purchase offers over several months. Ten of those offers were at 60-65% of the asking price, and were soundly rejected. Three were negotiated further and then accepted, and one is still pending.

One of the 15 offers was on a property that sold in 19 days to the first prospect – with the offered price being 97.6% of the asking price. Why? The owners used a land specialist who had the facts needed to price the property “just right”. The seller accepted the offer – and the transaction was promptly closed successfully.

Naturally, these owners first thought they had priced their land “too low”. What they realized after analyzing the sale was that it had been priced “just right” from the beginning – and the buyer recognized it as such.

The moral of this parallel story to the “Three Bears” is that it is NOT necessary to price land too high OR too low. By choosing a land specialist from the beginning, and then acting on the broker’s advice, a “just right” fair market value should attract a buyer every time!