Take your pick this evening when you are channel surfing –– would you rather binge-watch ‘Million Dollar Beach House’ or ‘Million Dollar Agent’?
Or if you are a fan of Bravo’s ‘Million Dollar Listing,’ do you prefer the series filmed in New York, Miami, San Francisco, or LA?
You have a lot of choices because, at least to the networks, only listings over $1M matter.
The Power of ‘One Million’
In case you hadn’t figured it out yet, the $1,000,000 price tag contains two commas, and thus the title of the blog.
Putting the words ‘million’ and ‘dollar’ in front of anything will draw eyeballs. TV shows, movies, books, blogs –– everywhere you look, you can find the use of the word ‘million’ in order to grab attention.
- ‘Who Wants to Be a Millionaire?’
- ‘Million Dollar Baby’
- ‘Million Dollar Arm’
- ‘The Million Dollar Agent’
- ‘One Million Followers’
- ‘The Millionaire Next Door’
- ‘What I Learned LOSING a Million Dollars’
We are obsessed with the idea of a million of anything.
But does it make sense to be a ‘million dollar’ specialist in our market?
What Percentage of Homes Sell Above $1M?
Do you know the answer?
It is relatively easy to figure out.
Year to date (January to September 2020), a mere 120 homes have closed above $1,000,000 in the entire CVRMLS.
When you compare that to the over 16,000 homes that have closed below $1,000,000, some quick math tells you that the answer is less than 1% –– .7% to be exact.
Let that sink in –– less than 1% of homes in our market have sold above $1M. And this has been the most insane market in history!
- the median Days to Sell above $1M is 40 days
- the median Days to Sell below $1M is 12 days
So homes below $1M sell nearly 4X faster.
- the median Seller Discount above $1M is nearly 4%
- the median Seller Discount below $1M is basically ZERO!
So $1M listings have to cut price at a far greater rate than homes below $1M.
Nearly every indicator of market health tells a far different story (number of expired listings, number of price reductions, withdrawn/released) than the segments at lower prices.
Despite the popular lore, when you look at the numbers, the $1M house market is not as robust as the zeitgeist would like us to believe.
Commissions Earned Per Day
Now think about this (math alert!) –– if you break down the number of sales in each price band and divide them by the median days to sell, you get an idea of how much commission is created by each market segment each day.
The results look something like this:
- The price bands between $150K and 400K each generated in excess of $1M in commissions per day, with the $200K to 250K band generating nearly $2.5M per day.
- The segments above $700K generate far less –– from $100K to 200K per day.
Stated differently –– anywhere from 10X to 25X in gross commissions are generated by the more median-priced homes than are generated by the $1M+ homes.
That is a massive difference.
I get it, this analysis is pretty simplified –– and many additional factors drive the differences in the behavior of each segment.
For example, in the $1M segment, I didn’t account for:
- Time spent in ‘agent accompanied’ showings
- The cost of additional promotional efforts such as print magazines, drone footage, and staging
- The often reduced commission rates above $1M
And in the less expensive segments, I didn’t account for:
- Financing challenges / fewer cash transactions
- Additional inspection issues associated with less robust construction materials and methods
- The time spent handling more transactions
But even if you expand my crude analysis and account for these variables, I doubt it would meaningfully sway the 10-25X difference between the segments.
Yes, having two commas in the sales price carries with it some panache, and I think each of us, deep down, would love to be involved with the sale of our market’s most spectacular housing.
Trust me when I say this, some of Richmond’s most talented and knowledgeable agents work the $1M+ segment, and they deserve the recognition they receive for their accomplishments. They’ve worked hard to earn their stripes.
But, in terms of building your practice, think strategically. The segments that are easier to penetrate AND have far more velocity exist near the market median, and not in the tail.
Just because the asking price has a bunch of zeros and a couple of commas, it doesn’t automatically make it more profitable.