“Wholesale vs Retail Return On Investment – A Case Study In Selling Your Home” by Nick Pallis ©

PAL_024 copyIn previous articles, I’ve written extensively about the underlying emotional aspects that affect purchasing decisions, especially when buying a home. And one of the first things I discuss with sellers while preparing their home for the market is to consider the emotional drivers that will influence a prospective buyers decision to purchase as they walk through their home.

Every home has an intrinsic value determined by its location, quality and condition, along with the number bedrooms, baths and square footage. There is also a subjective value, determined by the personal tastes and desires of each prospective buyer, and it is from the examination of these intrinsic and subjective values that we derive a listed asking price. But to maximize a home’s true potential means addressing the “intangibles,” that is, the way a home feels to every prospective buyer that walks through. It’s this intangible, emotional connection that determines whether a home sells for a wholesale or retail price point, given its range of value.

The best example of a wholesale property is a foreclosure. These homes are typically purchased by investors who have little to no emotional interest in the property, where the motivation is strictly about dollars and cents and buying low enough to turn a profit. Foreclosures sell at deeply discounted prices and far less than if they were to be sold through conventional means where the intention otherwise, would be to live in the home. On the other end of the spectrum and representing retail at a premium is new construction, where prospective buyers are willing to pay top dollar for a home that is new relative to its resale competition. The marketing brokers of new construction projects are master merchandisers and go to great lengths to create a selling environment that taps into the buyer’s sensory receptors, that is, their “emotional” drivers. Everything is taken into consideration to not only make their builder’s product attractive, but to create an inviting and pleasurable shopping experience, where the sights, sounds and smells are taken into consideration.

The Case Study: A few years ago, we were hired by a developer to sell a plat of ten new homes being built in East Bellevue. The homes were previously listed for sale by a competing broker, but with no success. Four of the homes sat completed but remained unsold with two other homes under construction. While the bank was pressuring the developer to get the properties sold, the previous broker had been advising the developer to lower his prices in order to offload the homes. Exasperated, the developer needed to sell the properties quickly.

The Observation: The homes were attractive, built with a top-notch design, quality-workmanship and materials. The homes were good sized and given the demographics, were well suited for growing families. On paper, the homes seemed to be priced competitively and theoretically should have been receiving offers given their price point. However, among other issues, the yards were small and the development backed to a visible road with high traffic and the worksite appeared packed with workers and their equipment.

The Plan: Repositioning Makeover: 1) Reduced the amount of construction material from the worksite and placed unnecessary equipment either off site or in available garage spaces, 2) Planted a hedge-row of mature Leland Cypress trees along the back of the development. This visually blocked the traffic, i.e., out of sight out of mind. 3) Landscaped the entrance to the development, installed a monument sign with the name of the development along with low-voltage lighting. The front yards of the homes were also landscaped as construction allowed, 4) The homes were attracting families with young kids, however the smaller yards were proving to be a stumbling block. So a community gathering area was created with play structures located in an otherwise unused portion of the plat. 5) Repurposed the existing model home, adding additional staging to make it feel more welcoming, 6) Created a theme for the development, then professionally redesigned the marketing materials promoting the new theme and installed professional signage throughout the plat.

With a sales value totaling over $7.6 million, the cost for improvements came to approximately $20,000.

The Results: Keep in mind once again, that prior to performing these changes, the builder was advised by the previous broker to lower prices. That said, within three weeks, we sold eight of the ten homes. The ninth home sold within a month after the sale of the first eight and the last home sold as a custom-build, nine months later.

Return on Investment: So how much of a discount would it have required to sell all ten homes had the improvements not been made? The conservative estimate is a discount of $25,000 per home. Multiplied by 10 homes, this would have amounted to a $250,000 loss of revenue, not including the interest costs associated with servicing the debt. An investment of $20,000 returned $250,000, all at retail, premium pricing.

How does this relate to selling your home? First of all, there’s a big difference between how we live in our home and how we merchandise our home once it’s listed for sale. I often tell my clients that as we prepare their property for market, to begin thinking of their “home” as a “house” to be merchandised as the future home of a prospective buyer. Again, developers and their real estate brokers understand this concept and go to great lengths to effectively merchandise their product and invest the dollars to do so.

Your home is no different. It’s the advance preparation of de-cluttering, cleaning, painting, updating, landscaping, and looking for ways to downplay perceived negatives and accentuate the positives that determine whether a home will be sold at wholesale or at retail, that is, the lower or the higher end of the perceived price range, respectively.

And what about the return on investment? When preparing a home for market, I suggest that for every dollar invested in an improvement, expect a return equal to “the dollar invested, plus a factor of X,” or don’t perform the improvement. It’s that simple.

Nick Pallis is a Broker with Windermere Real Estate serving Seattle’s Eastside communities. Visit www.nickpallis.com.