By Jeff Boswell, Partner/Broker Associate
As we mentioned in our Q4 2022 Texas Land Markets Report, after two years of unprecedented activity in both transaction volume and price appreciation, the land markets, at least from a transaction volume perspective, have been trending back toward a historically more normal level over the last couple of quarters. Where transaction volume trends flow in the future remains to be seen, but it is apparent the activity seen in the period from mid-2020 through mid-2022 was extraordinary and likely not to be repeated in the foreseeable future.
At this stage, it is important for market participants (sellers, buyers and real estate professionals alike) to take a look back and remember the pricing strategy elements that were paramount for many years before this recent extraordinary period fueled by the pandemic, excess money in the system, low-interest rates and inflation fears.
As we included in our article, Pricing Land, “One of the most challenging aspects of selling your land is knowing how to price it.” The key takeaways from that article are even more important with today’s market conditions following a couple of astounding years when tried and true principles of pricing strategy did not seem to matter…until they did again.
What are those key principles of pricing strategy that are expected to yield the highest value for your land?
- Use a trusted land broker that has access to pertinent market data, knowledge of evolving market conditions and the experience to interpret those things. Your broker should also provide you with an honest and well-developed Broker Price Opinion. A quality broker will tell you what the market is indicating and not simply tell you what you want to hear.
- “Real Estate 101 dictates that your land listing will never have as much interest as it does when you first put it on the market.” Initial pricing strategy is of paramount importance and should be based on your Broker’s Price Opinion coupled with your timing objectives. The first year is the key year to generate buyer interest, multiple showings and potential offer(s).
- Our data shows that properties with initial asking prices within 10% of their ultimate sales price tend to sell within 6-12 months, while properties with prices 15%-20% (or more) over their ultimate sales price will be on the market for longer, typically 18-24 months and require a price reduction(s) to surface a buyer. Longer time frames lead to staleness.
- Given the availability of market information today, there really are no “do-overs” so do it right the first time and price it in the “sweet spot” as discussed with your Broker. Ranch buyers can fall in love with a place, letting emotion help the seller capture a premium. If they never see the ranch in the first place because it was overpriced, that opportunity is lost.
- Other strategies such as remaining at a high asking price and “considering all offers” might generate some lowball offers from bottom feeders but will likely not generate interest from the buyer you are seeking.
- Certainly, there are situations when sellers desire (and their brokers agree) to test the market but the simple laws of supply and demand will typically rule the result.
The bottom line is that to achieve the most value for your property, put your emotions aside, get advice from knowledgeable land brokers who will represent your interests and use an appropriate pricing strategy to take advantage of the leverage you have as a seller in the first several months of launching.
The elements above apply to buying strategies as well:
- A trusted and knowledgeable broker is essential to help navigate the process and the vast amounts of information available today, and interpret the data on the buyer’s behalf.
- You and your broker should concentrate on properties hitting the market that meet your criteria AND are appropriately priced while looking with a cautious eye at others.
- Your broker should also have and be connected with an expansive network to get information about happenings and off-market opportunities to allow you as a buyer to timely act.
- If you know what you are looking for, overpriced properties that are a good fit should simply be watched for significant reductions that warrant more attention and a visit.
- In order to achieve your goals, it is important for you and your broker to visit a prospective purchase opportunity, study the data and information and make an appropriate offer that will be given due consideration by the seller. It is a rare buyer that has the experience, track record, and reputation to garner that same respect from a seller without visiting the ranch and presenting a thoughtfully put-together written offer.
- Finding the right place at an appropriate price is far more beneficial than buying the wrong place because it was cheap. Similarly, overpaying for the right place only makes sense in limited scenarios for certain buyers.
Experienced professionals, along with sellers and buyers in the land markets were caught off guard at the start of the recent extraordinary market activity. Now is the time to go back to the basics with tried and true strategies.