The market is rising and homebuilders are responding. Buyers are out looking at all the new neighborhoods and they are ready to buy, but their decision is based on the perceived value, not what you have in the deal says Jim Belfiore of Belfiore Real Estate Consulting:
“The response I always get when I mention to a builder that their pricing seems aggressive is an explanation of all their costs. Unfortunately, their costs don’t matter because a project is only worth what the market is willing to pay for it. A new family doesn’t care why one house is more than a similar one down the street and they won’t usually stick around to ask why.”
Pricing an opening of sales high just to cover the costs that got you there “almost always ends up with price drops in about three months after a disappointing start” says Belfiore. If the goal is to move all the product at the end of the day for a number that meets your needs builders who start out with the opposite strategy of unloading the first few units at a slightly lower than target price find themselves building a momentum and increasing prices steadily. Belfiore says the numbers he sees show that builders who start low get to end high and move product quicker. He goes on to say he finds these builders are able to steadily increase prices with every third to fifth sale.
You can see this happening in sales offices. Buyers who see prices going up feel the momentum and sense of urgency to buy. They don’t want to miss out. Conversely, Buyers who see prices going down get worried that it is because things aren’t going well for the project and at the very least are more likely to “wait and see” if they don’t walk away entirely.
The lesson here is consider gutting it out on the first few units because it will kick-start the sales engine and get buyers hungry. Trying to make your money right out of the gate will only slow things down and work against you.
Do you want to see some of the numbers behind this strategy? Let us know in the comments or contact us and we’ll follow up with a deeper dive and all the stats!
