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Houses: Product or Commodity?


For decades the real estate industry has treated houses as if they were products. They are given a price by the Seller, placed into the market, and the marketing begins. That marketing becomes the catalyst for drawing potential buyers to the property. The idea is that the better the marketing, the faster and at a higher price, the house will sell. Unfortunately, this technique doesn’t work the same way with a house as it does with a Whopper, a Ford Escort or a Ralph Lauren sweater.

In an appreciating market, an agent places a sign in the yard and within no time at all is entertaining great offers and sometimes multiple offers. In a depreciating market, it doesn’t seem to matter what we do. Our 86 point marketing plan is rendered useless and the home doesn’t sell. This is because a house in the market acts more like a commodity than a product.

In a commodity market, the Buyer sets the price based on supply and demand, competition in the market and whether that market is appreciating or depreciating. Imagine I bought 100 shares of Bovard Consolidated mines for $190 in 2002 and another 100 shares last month for $73. Today, I’d like to get rid of 100 of my shares. What I need you to do, because you are my super salesperson, is sell the 100 I paid $190 for and I need to get that price. Can we do it? What do ya’ say??? Probably not going to happen is it?

A house acts more like a stock or another commodity such as gold, silver, pork bellies. Whatever the market is today is what the market is today. While we, as agents, need to have a firm grasp of this concept, it is equally important that any Seller with whom we’re speaking is taught this extremely important bit of information.

Potential Sellers need to have a grasp on the OBjective/SUBjective nature of markets. Because the market IS what it IS, there is an objective nature to pricing. Just because YOU like yours more doesn’t mean it will defy the market. On the other hand, because what something, like a house, is worth is in the eye/heart/mind of the Buyer, it is subjective from that standpoint. The more objective I can get a potential Seller to be during the pricing part of our appointment, the better job we’ll do when it comes to positioning the home in that marketplace.

Your potential Seller understanding the commodity/product discussion can go a long way in avoiding subjectively motivated pricing in any market.