Supply and Demand



In the last chapter, we compared the traditional, or Price approach with the Traffic approach.  We contrasted the two listing approaches as well as their different results.  Now let’s take a little closer look at my Traffic approach.  Up until now, I’ve shown you how it works, but I realize that because it’s so different from the traditional approach we’ve all learned and used for years, you still might be reluctant to give it a try.

Instead, you’re no doubt having thoughts like, “Maybe it works in your market, but I’m not so sure it will work in mine.”  Or, “What if I’m in a Buyer’s Market?”  Or, “Prices have declined in my market.”  Or, “What if my client is underwater?”  Or, “What if the economy is bad and we have lots of inventory?”  The fact is it’s not easy going against the norm, so let me convince you.

I’ve taught my Traffic approach to more than 100,000 agents over the last eight years, many in person and many more from one of my books, series of articles, or online seminars.  Because of that, I regularly receive email from agents who are either using, or are considering using, my Traffic approach in their own practices.

The emails I get generally fall into one of two categories.  The ones I like best are those that go like this:  “I tried your listing approach, and I can’t believe how well it worked!”  These agents actually tried it and found out for themselves that not only does my approach work well, but it’s also easy to present, and their clients love it.

The other emails are more like this:  “I love your approach, but I’m afraid it just wouldn’t work here in my market because… blank.”  Some agents may fill in that blank with their local inventory levels, others with home prices, others the economy, and so on.  In other words, their email is, “I love your approach, but…”

One day I just happened to receive two emails, and coincidentally, they were both from agents in the very same market.  One said, “Your approach is great!  I can’t believe how the clients get it and choose it over the traditional approach every time!”  The other email said, “I really like your approach a lot and I’d love to use it but, unfortunately, it won’t work in my market.”

The sad thing is that both of those agents who sent me the two opposite emails were right.  Huh?!  Yeah… the one who actually tried it and discovered for himself just how well it worked and how easy it was to present, was exactly right — it is the best listing approach ever.  But sadly, that agent who didn’t try it was also right — it will not work in his market.  He won’t try it, so it will never work for him.  Ironically, both agents are correct.

But rather than just give you examples from different markets — hot markets and cold markets, buyer’s markets and seller’s markets, good economies and bad economies, high inventory and low inventory — I think it’s just better to show you why it works.  You already know how it works, but after you learn why it works, you will understand that it truly is an approach that will work anywhere, anytime.

Okay, so why does it work?  Because it is based on the economic law of supply and demand. Here is the “textbook definition*” of the law of supply and demand:

Supply and Demand is an economic model of price determination in a market. It concludes that in a competitive market, the unit price for a particular good will vary until it settles at a point where the quantity demanded by consumers (at current price) will equal the quantity supplied by producers (at current price), resulting in an economic equilibrium of price and quantity. The four basic laws of supply and demand are:

  1. If demand increases and supply remains unchanged, then it leads to higher equilibrium price and higher quantity.
  2. If demand decreases and supply remains unchanged, then it leads to lower equilibrium price and lower quantity.
  3. If demand remains unchanged and supply increases, then it leads to lower equilibrium price and higher quantity.
  4. If demand remains unchanged and supply decreases, then it leads to higher equilibrium price and lower quantity.

* Wikipedia

Yawn!  I know.  But now let’s define supply and demand in a more “down home” practical way.  The first two laws deal with a fixed supply and changes in demand, while the last two laws deal with fixed demand and changes in supply.  Another yawn!

Okay, another way of looking at it is that laws one and two are “micro” or small picture while laws three and four are “macro” or big picture.  Why?  Look at what’s fixed or unchanging.  The only way to have an unchanging supply is when we are discussing only one home (micro).  The only way we can have an unchanging demand is when we look at the entire market (macro).  In light of that, let’s apply that explanation and look at the four laws of supply and demand:

If you have increased demand, or more buyers, and you have a fixed supply, or only one house to sell, then you can command a higher price.  Law one.  Think of times when you’ve had multiple offers on a home.  They had to bid against one another, and the home got top dollar.

On the other hand, if you have less demand and a fixed supply you may have to lower the price to attract a buyer.  Law two.  Think of the traditional approach when the listing doesn’t sell for a period and you then ask the seller for a price reduction to attract buyer interest.  If it doesn’t sell, you reduce the price again and again until you finally attract a buyer.

Since the Traffic approach to listing is all about selling only one home, then by definition, supply is fixed.  In other words, laws one and two directly apply to the Traffic approach.  On the other hand, the third and fourth laws don’t directly apply since they deal with changes in supply.  But, they do indirectly apply when looking at the entire market as a whole.  Now let’s take a look at laws three and four.

If you consider the larger market, it’s clear that we cannot affect demand.  The total aggregate number of buyers for any given market at any given time is fixed.  It is what it is.  So, if demand remains constant, and the supply of homes increases, then there are more sellers who are competing for the same pool of buyers and prices will fall.  Think of neighborhoods where many sellers put their homes on the market at once.  That’s law three.

By the same token, if demand remains constant and there are fewer homes available in the market, buyers will then have to compete for the limited inventory and prices will tend to increase.  Think of very desirable neighborhoods with limited inventory.  The homes fetch top dollar.  This is law four in a nutshell.

Most of the time we think about laws three and four but we often forget about laws one and two, probably because most of our training comes from a “big picture” perspective and not a “sell one home” perspective.  Think about it.  Where do we get our market information?  Typically we get market data from our local boards or from the National Association of Realtors®, and both are big picture.  But when it comes to listing and selling real estate, the first two laws are the ones that most directly apply.

Now that we have examined supply and demand, let’s apply it to my listing approach.  Because supply and demand is an economic law, it works the same everywhere.  Just like the law of gravity, it is not market specific. Just like gravity that works the same in a buyer’s market and a seller’s market because it is a law of physics, supply and demand works the same everywhere because it is a law of economics.  That’s why they are called laws and not theories… because they work the same everywhere.

Now think about my Traffic approach.  When we use it what are we actually doing?  We are taking the fixed supply of one house and we are increasing the effective number of buyers for it by doing what?  By bribing agents to show it to their clients.  Simple.  Are there still the same number of buyers in the overall market?  Yes.  But most of those buyers were never going to see your listing.  Only a small number were.

By paying agents to show it, we have effectively increased the number of buyers who will ultimately see the home we are trying to sell.  In other words, effective demand is increased, and that will support a higher price because there are more buyers competing for the home.  And in your seller’s world, that is real demand.  It’s not about how many buyers are in the broad market, but how many are in the market for their home.  Fixed supply, increased demand.  Law one.

Now let’s look at some specific instances where you might consider using the Traffic approach and examine the “why” for each of them.  In each instance I will demonstrate why the Traffic approach is the best approach when it comes to selling in the least time and netting your client the most money in the process.

Buyer’s Market.  In a Buyer’s Market, the buyers are in control.  There is a larger supply of homes to meet the fixed demand of customers.  In other words, there are more properties than buyers — any buyer will have his choice of homes.  Law Three.  So how do you enhance your seller’s chances of ultimately closing?  By increasing demand for his home using the Traffic approach.

Recession.  A recession is generally understood to be a widespread decline in economic activity. In practical real estate terms, that means a reduction in demand chasing a fixed supply.  Law Two.  In a recession, you can use the Traffic approach to effectively increase demand for your client’s home and help your seller to overcome the underlying economic conditions while still netting him top dollar.

Negative Equity.  When a seller, for whatever reason, has little to no equity or worse yet, negative equity, the only way to help him sell his home is using the Traffic approach. Instead of selling at the lowest possible price, the Traffic approach sells the home at the high end of the reasonable range of value or approximately 10% more than the Price or traditional approach.  In other words, you’ve effectively raised the price by 10%.  Then you spend a portion of that higher price to buy additional demand.  That will allow a seller with negative equity to get out of a home with the least amount of pain.

Pre-foreclosure.  When a seller is having a hard time making the payments on his home, he needs relief quickly — often there are only a few months remaining before the home goes into foreclosure.  For that reason, the Traffic approach is the perfect solution because it sells the home in half the time required by the Price or traditional approach.  If the seller is to salvage any of his equity, he needs an immediate sale.

Expired.  This seller is frustrated.  He is looking for a fresh idea, and has already spent at least one listing term with his home on the market.  Using the Traffic approach you will not only be offering your seller a fresh idea that is different from what he has already tried, but more importantly, you will sell the home in half the time of the Price approach while netting your seller more money.

FSBO.  A client who has failed at selling his home FSBO, is a perfect candidate for the Traffic approach for two reasons.  First, it addresses the reason he tried to sell his home FSBO in the first place — more money in his pocket.  It also shows him a way to reduce his time to sell by increasing effective demand for his property.  Using the Traffic approach he will net more and sell quickly.

Stigmatized.  When a home is stigmatized, by being on the market for too long, it will have an artificially low demand meeting a fixed supply.  Law Two.  The best way to overcome this situation is to increase the demand by bribing buyer’s agents to show the home — my Traffic approach. The result will be the highest possible price and the least time on the market.

Price Reduction.  Whenever you have a seller who is wanting to reduce the price of his home, what is happening is that you are attempting to increase demand by lowering the price.  The downside is that the client will net less money in the process.  Demand is low and the supply is fixed.  Law Two.   A better solution might be to raise the price to the high end of the reasonable range, while designating part of that increase to raising the commission to effectively buy more demand.  This is my Traffic approach.

Dog house.  This is similar to the Stigmatized example earlier.  A “dog house” is in poor condition and tends to repel buyers.  In other words, you have an artificially low demand and a fixed supply.  Law Two.  Using my Traffic approach you can raise demand and command a higher price while selling the home quicker than would ordinarily be possible..

High inventory.  High inventory, often caused by a recession, is the classic case of high supply meeting fixed demand.  Law Three.  The best way to set your client’s home apart is using the Traffic approach. It will ensure the home is on the most show lists possible by having motivated buyer’s agents trying hard to match their buyers to your client’s property.

Seller’s Market.  For every rule there is an exception and the same is true with the Traffic approach always being the best way to sell a home.  There is one instance where the Traffic approach (and any brokerage approach for that matter) is not needed.  That instance is a seller’s market.  In a Seller’s Market, the sellers are in control.  There is a smaller supply of homes to meet the fixed demand of customers — not enough inventory to go around.  Law Four.

In a seller’s market, the seller may not even need us.  Fortunately, seller’s markets are few and far between.  Sure, they may hire us anyway, but the fact is that, if the average days on market is less than a month or so, the seller could very easily sell it FSBO.  In a seller’s market the homeowner should be able to command top dollar for his home without even listing it, and if he does list it, he doesn’t need to offer much in the way of agent compensation. If we get the listing anyway, we should count it a blessing.

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Let me sum up by saying this:  In the competitive market of real estate, supply and demand really is everything.  Understanding and using my Traffic approach to effectively adjust that supply and demand relationship to the advantage of your client, will provide your clients with the ultimate in real estate brokerage service.  And you’ll set yourself so far above your competition that nobody will be able to compete.  You’ll become the go-to agent when it comes to selling a home, and you’ll serve your clients better and you’ll make more money doing it.  Now how cool is that?!

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Matt

I give away about 99% of all my technology and digital training content, completely free of charge, because I want to see other agents have the same kind of success that I've had. But one thing I charge for is my Ultimate Website technology. This is the web technology I created for myself that turned my real estate practice around overnight, and now I license it agents everywhere. But right now it's too popular and is currently waitlisted. Click here to get on the website as soon as possible and I'll notify you as soon as new invitations become available.