June 10, 2023 | Inman
While often used interchangeably, these three factors speak to different aspects of your business — and your clients’ decision-making process
While often used interchangeably, these three factors speak to different aspects of your business — and your clients’ decision-making process.
When we talk about money, whether we’re looking at operational expenditures, revenue or launching a new listing, we sometimes lose sight of the different layers that are built into the numbers we’re evaluating. These can be broken down into price, cost and value.
While we sometimes use these words interchangeably, they really speak to different aspects of the numbers you crunch. Whether you’re balancing your brokerage’s budget or helping your clients to evaluate multiple offers, take a look at all three of these to make the best possible decisions.
Price
Price is defined as “the amount of money given or set as consideration for the sale of a specified thing.” (All definitions are courtesy of Merriam-Webster.)
For your clients
When you’re working with buyer clients, you’re looking to get them a price that’s not only within the range of what they can afford, but that also represents a fair (or more than fair) market price.
When you’re working with seller clients, you’re looking to get them the best possible price according to market conditions and perceptions of value, along with a price that will help them put their goals into motion (such as upsizing or relocating).
Note that perceptions of value can have a big impact on the price and can change based on market conditions as well as personal preferences.
For your business
The price you charge for your services may be fee-based or percentage-based. For some real estate professionals, the price is fixed and immutable while others are willing to negotiate.
The price you pay for your office, and the goods and services you need to run it, can involve a lot of variables. You may be willing to pay a higher price for an office in a better location, either because the market there is more active or the location itself offers you more visibility or foot traffic.
Similarly, you may be willing to pay more for better signage, higher-quality marketing materials, high-end furniture and other items. These higher prices may be a waste, or they may come back to you in the form of an improved perception of your business and a greater number of clients.
Cost
Cost is defined as “the amount or equivalent paid or charged for something.” Notice that price is the amount of money set, while cost is the amount of money paid, which can be different.
The real difference comes in the second definition: “the outlay or expenditure (as of effort or sacrifice) made to achieve an object.”
For your clients
Say your buyer clients are looking at two homes listed for exactly the same price. One is newer, filled with updates and has a clean pre-inspection. The other is older, has deferred maintenance, and is being sold as-is.
While the price is the same, the cost to your clients is not. That doesn’t mean that it’s a good or bad thing. The more upgraded home may be smaller or may be in an undesirable neighborhood. The fixer-upper may be on the waterfront or in a historic district or may have rental potential the other home lacks.
The cost involved in getting into the home, and getting the home into optimal condition, can differ widely for different properties and for different reasons.
Similarly, for sellers, getting “their price” may involve a host of post-inspection updates, seller closing help, or other hidden costs. In some cases, it may make more sense to aim for a lower price in order to avoid costly accommodations during the escrow process.
For your business
Similarly, your business will live and die by the costs associated with operations. How much are you spending for marketing? How much are you spending for staff?
If you’re getting adequate ROI for these costs, they may be more than worthwhile. However, if you’re not tracking your costs and the returns they provide, you may be throwing money down a hole every month without even knowing it.
Many business owners are short-sighted when it comes to costs and think that by being tight-fisted, they’ll ensure profitability. However, paying less for a less-efficient staff member isn’t a cost-savings, and could end up costing more in the long run. Similarly, making do with a less-effective tech stack could keep you from garnering new business, taking money out of your pocket every day.
Value
The first definition of value is “the monetary worth of something.” So far, so similar. However, look at some of the secondary definitions: “relative worth, utility, or importance” and, more importantly, “something (such as a principle or quality) intrinsically valuable or desirable.”
For your clients
When we look at value as it relates to your clients, we get into the realm of personal perceptions. We’ve all seen people pay top dollar for a humdrum home in the right location — close to work, in a good school district or close to their family or friends.
When you’re advising your clients, you have to know what is truly important to them. You may be a wizard at crunching the numbers in your spreadsheet, but if you’re not getting at the core of what matters for your clients, if you’re not having those in-depth conversations with them up front, you’ll never convince them that your numbers are the whole story, because they’re not.
When you’re creating a search for your buyers, make sure that the things they value are part of the equation. When you’re marketing a home for your sellers, make sure that you’re keying in to the intangible value-adds so that you can attract buyers who’ll look past both the price and the cost of the home — and fall in love.
For your business
What can you do to add value to your business, both for your agents and for your clients? Are there cost-effective ways that you can make people feel something special when they walk in the door? Are there ways you can get out into the community and add value — doing good while also doing well?
Are you struggling to present an upscale image? Are you overspending in your business to try to tap into a certain market segment or price point? There may not be value in that for you, and you may find that serving a different niche or customer base will be more cost-effective while allowing you to add more value to the clients you serve.
Do you pride yourself on your fancy office or your huge staff? You may find that they’re not really adding value to your business’s bottom line. Alternatively, you may find that you’ve been avoiding expenditures or new hires or scalability options that would add tremendous value, either out of fear or a bad case of imposter syndrome.
Long story short, whether you’re listing a home, evaluating an investment or expanding your business, dig deep and get past the price-related sticker shock to find out the cost and value of the choices you’re making. You may be surprised at how it changes your perspective.
Troy Palmquist is the founder and broker of <DOORA Properties in Southern California. Follow him on <Instagram or connect with him on <LinkedIn.
