Evaluating comps when pricing
by Donald Davidoff | Mar 19, 2013 12:00:00 AM
Understanding your competitive set when pricing is obviously important. If youre constantly at low exposure, you can push pricing and ignore whatever comps are doing. But if your exposure ever goes up, youll want to make sure that youre not priced out of the market such that you cant reduce exposure.
In my experience, Ive seen two camps on how to approach this problem. The first tries to build the comparison from the ground up. We audit our community against the comp on a variety of thingsage, community amenities, unit size, unit type amenities (balconies, fireplaces, kitchen and bath finishes, etc.), and record these in (usually a large) spread sheet. $15 for a balcony, $3 for crown molding, $10 for a fireplace, . A lot of work, and a lot of alleged precision.
Can you tell I dont belong to that camp? The reason is pretty fundamentalalthough theres a (I believe false) sense of security and precision in such a complete and seemingly analytical approach, the reality is simply our customers dont shop for apartments that way. You rarely see a prospect come with a matrix of things theyre evaluating, or even see them taking notes. Do we really think a prospect is saying to themselves, Ooh, crown molding. Ill pay $3 a month more for that. Of course not.
Searching for a place to call home is a much more holistic process. So Im an advocate of conducting this thought (or real) experiment. Walk your community/unit type as if you were on tour. Then do the same for the comp. What price difference would make the decision between the two really tough? Ask all your front office staff the same questionthe average (or maybe even better the median) is usually a really good answer.
You can also do a sanity check on your answerlook at the current rent difference between your comp and you. If your occupancy/exposures are comparable, thats another good data point. Im a big fan of the notion to let the market tell you what the difference is. Whats the comps rent per square foot vs yours? Is that explainable by size, age and other differences? If the actual differences are in the ball park of your estimate, youre good to go. If theyre different, which is more believable (hint: I tend to favor what the market is telling you, but there are times where you know why a comp is just mis-pricing so you do need to use your own judgment).
Competitive price comparison is never an exact science. So lets not pretend it is. Lets shop the way our prospects shop, do a sanity check and then use our best judgment. That may not get you an answer to defend if you were trying to get a PhD, but its good enough to make business decisions from.