Tracy Talks to Inman News About the Psychology Behind Pricing in the Luxury Sphere!
September 17, 2019 | inman
Pricing a property is a real skill no matter what your niche is, but when your property market is in the ultra-luxury niche, there will be no thick package of comparables (aka comps or a CMA) to help explain your pricing advice during the listing presentation.
We’ve talked to some of the top luxury agents out there to find out how they work through pricing with their high-net-worth sellers.
Going beyond comps
For Joyce Rey, Beverly Hills veteran agent with Coldwell Banker, the list of properties she has been asked to price includes Michael Jackson’s former estate (formerly known as Neverland Ranch) in California, which she repriced from $100 million to $65 million over a year ago.
She calls pricing luxury homes “an inexact science.” She will often consult with other Coldwell Banker agents and competing agents before naming a suitable price.
“Every property is very individual. It’s a question of location; lot size; condition; market conditions, local and nationwide; if there is a celebrity connection, that has to be considered — it’s a combination of factors,” she said.
It’s also about the psychology of the sellers, how motivated they are and what price expectations they have. Meanwhile, you, the agent, want to price the property “within reason” to elicit activity and offers, Rey said.
According to The Agency’s Billy Rose, you can’t just “pick a number” out of the air. There needs to be some way to justify it, and sometimes the justification is that there is nothing else like it in this market, so you perhaps compare it to another market and “normalize the economic difference between markets.”
Tracy McLaughlin, The Agency’s top seller in Marin County, did just that a few years ago. She looked to another area that was substantially higher quality than the property she was selling and the other properties in the Bay Area’s San Anselmo market.
“I went to one of Marin’s most exclusive and expensive neighborhoods, Ross, and generated the price from home sales there. I extrapolated what the difference in location (about 5 miles) would reduce the San Anselmo house by, and then priced it at $5.995 million. We sold it for a record price of $5.85 million — a record that has still never been exceeded in that neighborhood.”
It’s up to a good agent to remove emotions the sellers have for their property and persuade them to listen to the market, said Craig Hogan, VP of luxury for Coldwell Banker. The market is the only factor that truly matters.
Much of the psychology behind pricing a home has to do with how “skilled the listing agent is at explaining the reality versus the emotions and knowing how to have this conversation with the seller in a way that benefits everyone involved,” Hogan said.
“It’s about strategically pricing the home while still pushing the envelope to try to get the higher price,” he added.
Who is in your Rolodex?
For many luxury agents, bringing their Rolodex to a luxury listing pitch is better than bringing a thick packet of comps.
Windermere Real Estate luxury agent Anna Riley sells waterfront homes in Seattle, a city known for famous billionaires Jeff Bezos and Bill Gates. Riley says in the $10 million-plus ultra-luxury market it’s about “having a good pulse on who the buyers are in the market.” And there is a finite pool of buyers in ultra-luxury, she finds.
“Our job as agents is to give a very thorough understanding of who the luxury buyers are and their timing, and it’s always very important that you clearly demonstrate your knowledge of the characteristics of the architecture and the amenities of the home in order for sellers to have confidence that you will sell the home,” she said.
It can take one or two years to find the right match — depending on who is in the current market and what their price thresholds are, she adds.
When it comes to repricing a property, which happens quite a lot in the luxury market, an agent has to genuinely understand the seller’s sense of urgency, Riley said.
“It’s not financial urgency — it’s a psychological urgency. People get tired of the mental overhead of having a home on the market. It’s taxing to get the weekly updates,” she said.
Don’t forget about the buyer
The psychology of the buyer is very important in luxury too.
In her Seattle waterfront market, Riley finds buyers are less concerned about price and more concerned about getting the right property. Everyone loves being offered a home only a few know about.
Riley estimates 20 percent of her market’s very-high-end properties trade privately because sellers prefer to sell under the radar for privacy reasons. Buyers have less ability to negotiate on price in these private sales, but they get what they want.
“They tend to know what a home has traded for historically, and at a certain price level, there is even some gravitas in paying the most for a property, but that tends to be at the very high end,” Riley said.