The secret is in the theoretical justification for buyer’s use of “Psychological Reference Point” !! This is common practice in in Merchandising Research where the the Retailer use a Reference Price as an standard against an “Observed Price” in marketing to consumers. Bottom line is that Retailers use the SALEs gimmicks to move out inventory where the consumers spend a lot more money without regard to “Quality” when the merchandise is priced well below our internal standard!
Well, US Banks are doing the same merchandising techniques. And what’s helping them is the fact that they control the inventory so they have much more control of the markets that most retailer. Have you ever taken home a shirt from the Clearance rack at your local Macy’s knowing full well that you will never wear it because it has a SALE sign on it!? Have you ever paid too much for something only because it was on Sale!?
And believe me, pricing properties lower than everyone expectations really works! It generates tons of interest. And precisely because people are seeing prices well below their “reference point”, we believe they over spend!
Could it be that my bankers are taking a page from Retailers and are marketing properties the same way Retailers conduct Sales!?
We are seeing quite an interesting trend where our valuations are cut when we price REO properties for sale! One industry observer was stating that the FED has asked the banks to keep the property prices low, to avoid the creation of another Real Estate bubble!!
What do you think!? Let us know.