The Greed Trap
February 9, 2016
Your career is influenced by a whole list of factors. Think of yourself as a product in a marketplace. Because ... you are.
We have a saying in the property rental business. It's called "Greed Trap." Sometimes, by being greedy, you actually attract LESS in the end than if you had NOT been greedy in the first place. Some might call it Karma, some might call it stupidity. But it is a thing; the universe has a quick fix for it, and it's valuable to know how this law works as it relates to your dealings with others and your career. It's an age-old, supply-and-demand lesson that everyone selling anything (including themselves or their services) has seen up close.
GREED TRAP EXPLAINED
We deal with owners of vacation properties every day. Let's take a beach vacation condo as an example. It might be worth $2,000 a week in the peak summer months like July. That's what vacationers are willing to pay. That's what the market dictates. Nothing can change that; the market is the market ...- it is worth what it is worth, and while an owner may be able to price it slightly higher around the edges, it's worth exactly what the market is willing to pay, and nothing more.
The owner, who just painted the unit and added a cool wine fridge, thinks it's worth more. Owners are emotionally attached to their product and always think it is worth more than it actually is at market. Try as we might to help them understand that the unit is STILL worth $2,000 per week -- because that's what the market will bear -- the owner insists on raising the rate to $3,000 because they want to "recoup" their investment at someone else's expense. Okay.
The painting and the wine fridge might help the unit rent EARLIER at $2,000, but since it is not a complete remodel, the price per week cannot legitimately be increased by $1,000 over market for such minor improvements.
We always tell our owners the truth, but some insist on learning the greed trap lesson the hard way. So, we honor their request and raise the July rate to $3,000 and tell them immediately that they are in danger of greed trapping themselves. We KNOW we can get them $2,000. We don't know if there is enough demand to sustain a $1,000 increase on such minor improvements as paint and a wine fridge added. They think their improvements alone will sustain the increased pricing. So it is done. The listing goes to $3,000 per week and the owner is very happy - for the moment. It is still April and July seems a long way off.
CAUGHT IN THE TRAP WITH DECLINING DEMAND
Meanwhile, it's spring. During April, we get lots of lookers at the July weeks. But at $3,000, there's a lot of silence, as lookers see the price, and then move on to rent something less expensive. They would have rented at $2,000, but $3,000 is too much. By May, all of the $2,000 units up and down the beach have sold out, and all that is left is our $3,000 unit. It's still open and not rented.
To complicate the problem, now every day that goes by, we have FEWER people in the market. Demand is DECREASING in the marketplace. Every single day, fewer people are looking for a unit as July approaches -- because they have already settled on something less expensive.
By the middle of June, with everything directly on the beach sold out, now the vacationers are moving back in off the beach by one or two blocks to rent the $1,500 and $1,000 units. Our unit is still unrented at $3,000, with those still in the market telling us we are "way too much."
BLOOD IN THE WATER
At this point, less than 30 days to arrival, the customers can smell it. I call it the "Blood in the Water" phase. People know that as an expiring product gets closer to spoilage, the price first goes DOWN, then goes WAY DOWN. They have been trained on this from years of buying stuff. The few people still looking for a beach condo know the unit is unrented. It is two weeks to their arrival or less. They know the owner wants it rented. And so now, the pain begins.
The customers now know they could score a home run here, and start looking for a "last minute deal," pitching us numbers like $700 to $1,000 and less for the week as offers to "help us out by occupying the place on an unrented week." I always forward these requests directly to the greed-trapped owner so they can get a sense of the marketplace. "What offer do you want?" Is always my comment. An easy and almost guaranteed $2,000 week a few months ago turns into $700 for the greed-trapped owner who had set their prices 33% too high.
Typically, if an owner gets greed-trapped, that owner can count on a 40% discount against what they COULD have easily gotten had they simply priced to market CORRECTLY several months earlier.
LEARN FROM THE GREED TRAP
Having goals does not mean greed. It is one thing to have lofty goals, but it is entirely another to try to set your goals so that in order to achieve them, you must be greedy and cause grief, or steal from others unfairly to attain those goals. That's not a solid goal; that's simply being greedy at the expense of others.
Know this law to advance in your career. You are operating in a market at all times. Know your market. Sometimes you get MORE in the long run by the law of LESS. As always, be fair and price your service to market. Avoid your own personal Greed Trap - unless you like to learn lessons the hard way!