One of the major aspects of putting together a successful marketing campaign is to price the project appropriately. From the point in time where the development started with a approximate feasibility study which took into account to where it is now when the construction is either underway or just about to start – now the marketing campaign has to kick and produce results. This is only possible if the pricing of your projects meets the current market conditions.
The price obviously has to take into effect the level of finish and features of your development and it may well be above what is currently selling in the marketplace if your project is unique and outstanding. However for the majority of development projects out there – there is a comparison pricepoint and if yours is priced well above it – then don’t be surprised that the agents will have a harder time selling it.
Best way to understand the market and feel what its doing is to get out there and attend some of the auctions and private sales of off-the-plan projects. Interviewing marketing agents is worthwhile also, however be cautious of speaking to an agent prior to having done your own research. There is a tendency for some agents to overestimate expectations in the beginning in order to “win the job” and this may give you a false sense of price points. Being out there in the field by yourself, understanding what the market is doing, how the sales of projects are going – this is by far the best way to feel the market “pulse” so to say.
- Price the project right to meet the market
- Stick to your own pricing if there is no comparison for your project
- Typically most projects will have comparable sales that will guide pricing
- Do your own research prior to seeing marketing agents
- Take marketing agent’s advice with a grain of salt as some agents tend to overestimate sales points at the front to “win the job”
4 Critical Elements to Setting the Price Right
Element 1: Research projects for sale in the marketplace
The most accurate indicator of the market “pulse” is what is currently selling and at what rate. Researching comparable projects being sold off-the-plan requires getting out to open for inspections or auctions and speaking with the agents. It is always good to be seen as an independent observer without an agenda when doing this research, as then you will be presented with objective data.
Element 2: Present your project to a couple of agents or marketing agencies for appraisals
Ultimately the project is going to be sold by a real estate agent or a marketing agency – so it will be a matter of sitting down with them to have an appraisal put together for your project. If you’ve used the approach from Key #1 in Picking the Right Estate Agent – then the pricing that should come back to you will be reasonably accurate and optimally if you get a couple of appraisals – then out of those you can identify a middle ground for pricing your project.
Element 3: Stay Conservative with Your Estimates
Always remember to stay conservative with your price estimates as the market is likely to change between now and at your project’s completion when the valuers for the banks are going to be putting together their valuations. This way there won’t be any surprises and your profit margin will stay intact.
Element 4: Sell in Stages and Adjust Pricing per Stage
One of the essential elements to selling projects off-the-plan is to create a base benchmark and elevate from there. Thus if you are working on a large project – having the early stages priced a little bit lower – creates the “rate of sales” for the estate agents and creates “social proof” that other people have already bought apartments or units in the project thus “it must be good” mentality sets in. Thus initially you may strategically release apartments in the project that are secondary and leaving the penthouses or top floor units for later release when the benchmark has already been established.
About 12 months ago, a Melbourne developer put an entire portfolio of 73 apartments and penthouses up for sale in Falls Creek, which is a snow resort with the market moving very slowly.
At the time it was considered to be a very risky strategy – however due to the amount of publicity this campaign had generated the project sales were completed in a weekend.
The properties were priced without a reserve price and were auctioned off to prospective bidders in Melbourne in one weekend. And from the reports, it seemed that the main objective in the developer’s strategy was to ensure that the sales happened rather than trying to maximise the financial returns on the development.
Valuer Peter Hay from Hay Property Group was quoted in the Sydney Morning Herald on the 18th of July saying that ”At the moment, for all snow mountains, this has been the slowest year for 10 years,” says Hay. ”The only movement is for entry level property,” he says. ”Your real entry level, it might be $80,000 to $200,000, is generally where things are moving.”
On the 29th of August after the sales had happened in the Age newspaper it was quoted: “About 250 bidders took the bait, making more than 1150 bids at a sometimes frenzied auction at Crown that lasted for almost three hours.”
So as an example of a sales strategy – the entire portfolio was cleared and as an objective to sell it out and exit that development – then it was effective. I’m not suggesting that this strategy should be employed for your projects, but as a way to test and establish a market benchmark – having some lower priced properties to get the buyers excited and buying – this strategy above could certainly work.
Setting the price of the project right – is just like cooking a cake with the right amount of icing sugar on top – if the proportion is right, then everything tastes great.