Price Precision Effect and How it Works for Us (LA 1280)
Price Precision Effect and How it Works for Us (LA 1280)
Transcript:
Jack Butala:
Steve and Jill here.
Jill DeWit:
Howdy.
Jack Butala:
Welcome to the Land Academy show, entertaining land investment talk. I’m Steven Jack Butala.
Jill DeWit:
And I’m Jill Dewitt, broadcasting from sunny Southern California.
Jack Butala:
Today, Jill and I talk about The Price Precision Effect and how it works for us. This is exactly what Jill said to me right before we turned on the microphone, “Why do we have to talk about the stuff that’s dry? I’m on my walk right now,” as she’s speaking for the listener.
Jill DeWit:
The listener, right.
Jack Butala:
I’m on my walk right now.
Jill DeWit:
I’m looking for a little bit of entertainment, please.
Jack Butala:
“Can you please just not talk about all this technical stuff, doom and gloom, and stop talking about this virus.”
Jill DeWit:
Yes. Yeah.
Jack Butala:
“Stop talking about all these … People are out there. Everyone just wants to chill out,” to which I say, “I completely disagree.” I think-
Jill DeWit:
Okay. All right. Please let us know.
Jack Butala:
I think we … yeah, let us know which one.
Jill DeWit:
Please let us know which you prefer, Team Jack or Team Jill.
Jack Butala:
I think there’s-
Jill DeWit:
Well, there’s a little bit of both anyway.
Jack Butala:
I think there’s a huge, huge opportunity for people. If you’re listening to this show, you’re obviously interested in making, generating some money from real estate or just some version of that.
Jill DeWit:
It’s not entertainment. Steven has just made that crystal clear. If you want to be entertained, have fun, this is not the show for you. Thanks.
Jack Butala:
[crosstalk 00:01:26]
Jill DeWit:
If you want to fall asleep, if you would like me to read The Wall Street Journal, just kidding.
Jack Butala:
Wow.
Jill DeWit:
I’m just kidding.
Jack Butala:
We could do that.
Jill DeWit:
I know we could. And I know you’d be good at that. I mean, in a good way.
Jack Butala:
Believe it or not, this is my way of compromising.
Jill DeWit:
Oh, thanks.
Jack Butala:
I’m bending way toward-
Jill DeWit:
Okay. I’ll do my best to save you.
Jack Butala:
Before we get into it-
Jill DeWit:
Not you. Listener you.
Jack Butala:
… let’s take a question posted by one of our members on thelandacademy.com online community. It’s free.
Jill DeWit:
Okay, so Rick wrote, “Hi. I’d like to acquire 11 properties in X subdivision,” interesting number-
Jack Butala:
He said the subdivision. I took it out.
Jill DeWit:
I know. “In a-
Jack Butala:
In a subdivision.
Jill DeWit:
… In a subdivision, about,” but he’s got a specific subdivision picked out, which is very interesting, “about 20 acres each as a set. I can do the work. I’m looking for a cash partner. I need to acquire them all or nothing. In terms of greenery, I want seven that look nice.” This is very interesting.
Jack Butala:
That’s why I cleared it.
Jill DeWit:
“In green, in satellite images, and then I’ll take four that are not very green.” So funny. “I would like-”
Jack Butala:
Green meaning it has trees is what he means. Not green like in your wallet.
Jill DeWit:
It’s green in those images, right? “And I’ll take four that look kind of, eh,” so, okay. “I’ve sold some properties in this county recently at about $800 an acre. The buyer was happy so I really have a good feeling about this. Would someone like … I would like someone to let me know how much they’re willing to pay to acquire all of them as a money partner. According to my research, cheap properties in this area go for about $1,000 per acre on LandWatch.” So he sold them for about 800. There’s a total of basically 250 acres in this subdivision, I’m guessing.
Jack Butala:
Jill’s going to continue on here, but I have to say this, you are doing everything right. This is a classic example of how to just catapult your land career.
Jill DeWit:
“I don’t want to blow the deal with the seller by making an offer that’s too low, and I don’t want to blow the deal with any of you guys or gals as investors by making an offer that’s too high. Obviously, I don’t want to spend your money foolishly, so that’s why I’m asking, at what price range would you be a cash partner and be willing to go on in this. If you give me a ballpark, I’ll contact you directly and get more details.”
Jill DeWit:
All right. Well, if you’re selling for 800, how about we buy for 300 an acre?
Jack Butala:
That’s about right.
Jill DeWit:
I’d be good with that.
Jack Butala:
Me too.
Jill DeWit:
So if all your numbers line up and you want me to be your cash partner at $300 an acre, Rick, or below, I’d feel good,
Jack Butala:
Right. And so he could sell it 700 to 800 very, very safely, and that price … This is what Jill’s really saying. At about 300, it takes all the sleepless night and risk out of this, and it does for me too.
Jill DeWit:
That part’s good. I like how you back into it, and that’s how I would back into him too. Even when I’m doing my due diligence, I still double check everything. I look at, okay, a returned offer comes back to me. They signed it. They want me to buy it. They’re ready to go. I’m still going to look around real quick and eyeball and go, “What are things selling for? Are they moving? What price are they selling for?” And then I back in, what’s my offer price? “Yeah. That makes sense. Good to go.”
Jack Butala:
Perfect.
Jill DeWit:
Thank you. That’s all you have to say about that?
Jack Butala:
I mean, I have a lot to say, Jill-
Jill DeWit:
Go for it.
Jack Butala:
… but I’m just kind of walking on eggshells because I’m concerned.
Jill DeWit:
Why?
Jack Butala:
Honestly, on all of these shows this week, I’m concerned about saying too much intelligent stuff.
Jill DeWit:
Oh.
Jack Butala:
And I’m … really mean it.
Jill DeWit:
Silly. Don’t-
Jack Butala:
I have a lot to say about this.
Jill DeWit:
Do, well, okay, well, no, no, that’s what I look at.
Jack Butala:
I’m not trying to rush through these shows.
Jill DeWit:
No, no, no, no, no. Well, I don’t want that either.
Jack Butala:
I think people have more time on their hands than they ever had-
Jill DeWit:
I agree.
Jack Butala:
… and I think they’re listening to something called the Land Academy show to learn about how to buy and sell land and not be as entertained.
Jill DeWit:
I agree.
Jack Butala:
But I do agree that it shouldn’t be boring.
Jill DeWit:
Good. I agree. So what is your … I gave my version. How would you have explained this thing?
Jack Butala:
I have a lot of experience doing multi-property deals that are like kind with this. And I think that … And the last several deals that I’ve done like this, I’ve netted a million bucks. So, Jill’s pricing is absolutely correct, but what I really want to drive home is that when you really do the math on something like this, these are 11 properties that are 20 acres each at 800 bucks. So, you’re talking about a $20,000 acquisition, maybe a $10,000 acquisition, and selling for maybe 20 to 25. That’s a great, times 10. So now you’re talking about $200,000 or $300,000 that are involved here. He’s doing everything right. He’s saying, “I don’t want to put all the money in myself. I’ll do all the work, and I have a history in this county with selling to buyers.” So, I really, really think, I really encourage you, to pursue this deal, as hardcore as it seems like you are, number one.
Jack Butala:
And number two, I think you’re doing the exact right thing about seeking out capital. You know, you don’t want to not do this deal because you don’t have the money in your checking account. And I say that with emphasis because that’s a substantial … A number of questions that we get right now is, “Man, I don’t have the money, but it’s a great deal.” It’s the sign of the times. There’s so many willing sellers out there. So congratulations, and I’m sure you’re going to do great on this. Please just make sure it has access.
Jill DeWit:
And a lot of investors too, by the way, like us, standing around with cash, just to spend.
Jack Butala:
Today’s topic, The Price Precision Effects and how it works for us. This is why you’re listening.
Jack Butala:
There’s a professor at Cornell University that just released a study and for whatever reason, it hit the mainstream media, or at least the stuff that I watch that affects real estate and big picture economics, because I think it all trickles down to real estate. But there’s this thing called The Price Precision Effect, and it’s a proper noun, where they did a study, a pretty extensive study, with real estate agents about who priced their property with a very specific number. So, instead of listing a house for 430,000 bucks, they listed it for 430,679, and 20% of the people who sold the house, they interviewed real estate agents, said, “There’s no negotiation at all.” So the psychological effect of the precisely pricing something, apparently, they proved it has much … There’s a lot more value to that than just rounding up or rounding down.
Jill DeWit:
Isn’t that amazing? And you’ve been doing this for years.
Jack Butala:
So, Jill and I were talking about this. We’ve always done it, always-
Jill DeWit:
That’s so funny.
Jack Butala:
… in our mailers, but we haven’t always done it on the south side.
Jill DeWit:
Down to the penny. Yeah.
Jack Butala:
Yeah, down to the penny, but we haven’t always done it on the south side. So we haven’t listed our property or gone out to market and sold our property with The Price Precision Effects, which now, after reading this-
Jill DeWit:
We are. Yeah.
Jack Butala:
… we’re changing the stuff that’s out there, and as a rule, posting it that way.
Jack Butala:
Some people say, “Sometimes I listen to your show and I just look for the little nuggets.” Here’s a big nugget. Really, really, I think it’s a very effective way, a tiny little trick that I think can add some serious value and lack of negotiation on both the buy side and the sell side. Just price your stuff precisely.
Jill DeWit:
I love it. I’m actually making a note right now because I’ve got a couple of brokers I’m working with and my new transaction person. I’m like, “I need to get my hands on that article so I can send that to them as proof.” We’ve all known it when we buy, like you said, and there’s no reason we shouldn’t be doing it when we sell it. And as I’m trying to think like that, do cars … I think cars sometimes do that. Not on Craigslist obviously, or not when you’re buying a used vehicle, I don’t see it. But I want to say there’s a sticker price and they go down to … Aren’t there pennies on the sticker price? I can’t remember if there’s change on there, but I think it’ll end in a seven or end in a four.
Jack Butala:
Car companies over the years, like Saturn used to be a economy car brand for General Motors, they’re since out of business, they had a no-negotiation policy, and so it didn’t … obviously they’re out of business. But I’m pretty confident Lexus, there’s no negotiation with Lexus.
Jill DeWit:
We all know 99 cents, we all know when you go into certain stores, you see something at 12.99, like, “Okay, just put $13.”
Jack Butala:
Where do you think it started?
Jill DeWit:
I don’t know.
Jack Butala:
I really wonder.
Jill DeWit:
I always thought it was a Walmart thing years ago, but I don’t know who.
Jack Butala:
And then over the years I’ve heard, even people in our group, say, “Oh no, you have to end every price with a seven.”
Jill DeWit:
Yeah. They love the seven. There’s something about seven.
Jack Butala:
This has been going on for decades.
Jill DeWit:
Exactly.
Jack Butala:
But I’d love to see the study on that, because I read the whole study of this Cornell thing.
Jill DeWit:
And it just said, “Precision, just down to a certain number.”
Jack Butala:
Yeah. And then they backed it all up with not just real estate, they did a study on it.
Jill DeWit:
Well, the bottom line is it makes sense. I mean, well, how it works for us, for me really, is on the acquisition side because it sparks something. I can’t tell you, because myself or my team are usually the ones answering the phones when these offers go out, and a high percentage of the people are calling to go, “How did you get this number?”
Jack Butala:
Yes. Exactly. Exactly.
Jill DeWit:
They’re intrigued by this. It’s so funny, to which I say, “I have an incredible team,” meaning Steven, “who spends an incredible amount of time really getting into the true value and what will work for us for your asset,” and that usually stops it right there. They don’t go, “Huh?” Because it’s not like, “It’s 36.4% of the assessed value,” whatever it is. It is nothing like that, and that would make their head hurt anyway. Then they would ask more questions.
Jack Butala:
That’s a truth, too. I spend a ton of time correctly pricing real estate.
Jill DeWit:
Exactly. So yeah, the bottom line is that at the end of the day, we are coming up with a ballpark per acre and then we’re making it a very precise number because it does make the phone ring.
Jack Butala:
You know what? Jill and I have tons and tons of experience at this and I’m not bragging. I’m just saying that if you look at anybody with some gray hair who does anything and they’ve been doing it for a long time, I don’t care if it’s being a cop, or it doesn’t matter, or a nurse or a teacher-
Jill DeWit:
Anybody with gray hair. That could be married. Could be marriage.
Jack Butala:
Their … yeah.
Jill DeWit:
I don’t care if it’s-
Jack Butala:
Their careers and their experiences are packed full of tiny little things like this-
Jill DeWit:
True.
Jack Butala:
… that they don’t even think about. So if they’re not in a teacher kind of mindset, like I think we are just natural teachers, or natural-
Jill DeWit:
Givers?
Jack Butala:
… whatever we are, natural weirdos, you don’t explain stuff this way. So, there might be an old crotchety guy at the end of the bar with a stinky scotch in his hand saying stuff like this, and everybody’s like, “What?” It’s not, but he’s got all this stuff packed in his head.
Jill DeWit:
Sure.
Jack Butala:
He’s just not presenting it in a way that anyone can understand it, so cut the guy some slack is what I’m saying.
Jill DeWit:
Excuse me, because he’s on his sixth scotch. That’s why no one can understand him. Just ignore the guy in the corner. He’s very wealthy, but he’s drunk all the time.
Jack Butala:
But you can learn from that guy.
Jill DeWit:
Yeah. That’s good.
Jack Butala:
Especially if he owns apartment buildings right now. He’ll tell you some stuff.
Jill DeWit:
Exactly. Happy you could join us today. We are here Monday through Friday on the Land Academy show.
Jack Butala:
Tomorrow the episode on the Land Academy show is called These Are Tough Times, so Here’s Our Response on How To Deal With It. You are not alone in your real estate ambition.
Jill DeWit:
Because tomorrow could go two different ways. Actually, tomorrow could go eight different ways.
Jack Butala:
I’m going to start tomorrow with a story.
Jill DeWit:
Okay. Okay. And that’s all you’re going to say?
Jack Butala:
And it’s a story and an experience that I had with my immediate family about Detroit.
Jill DeWit:
Uh-oh. Oh.
Jack Butala:
And Jill’s going to counterbalance it with a story and experience about her immediate family and how they dealt with tough times in Michigan. We’re both from … Jill was not born in Michigan, but-
Jill DeWit:
My dad was. Yeah.
Jack Butala:
… her roots are all there. And so, there’s a way to respond to these tough times that you can really make it work for yourselves.
Jill DeWit:
That’s true. The Land Academy show remains commercial-free for you, our loyal listeners, so wherever you’re watching, wherever you’re listening, please subscribe and rate us there. We are Steve and Jill.
Jack Butala:
We are Steve and Jill. Information-
Jill DeWit:
And inspiration.
Jack Butala:
… to buy undervalued property.
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