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Price vs. Pricing Strategy

Price vs. Pricing Strategy

Many sellers when interviewing a real estate agent for the job of getting their home sold ask the $64,000 question….

– “What do you think my home will sell for?”

In reality, no real estate agent has the ability to predict what any home will sell for. At best an agent can give a 5 – 10% range in which the home will sell.

And in reality it is the homeowner that sets the listing price not the real estate agent.

The facts show that only 1 out of 3 homes listed for sale actually close escrow and only 1 out of 5 homes actually sell without having to reduce the price one or more times.

These statistics clearly indicate how difficult it is to pick the exact price a home will sell for.

There is more than way to achieve the final sales price you are looking for.  Below you will find the three most common strategies when it comes to pricing a home for sale.

Strategy #1 – The “Conventional” Strategy

This is the strategy most used by sellers. In this strategy a seller will price their home at the high end of the price range or even beyond the upper limit (typically 15% or more above fair market value).

There are four main reasons most sellers employ this strategy.

First the seller thinks their home is worth more than what the numbers show.

Second, the seller is thinking they want to leave some room to negotiate.

Third, they want to make sure in their own mind they are not leaving any money on the table.

Fourth, the seller is not in a hurry to sell and/ or is not 100% motivated to sell.

Again, this is why only one out of three homes listed for sale actually end up closing escrow.

Strategy #2 – The “Fair Market Value” Strategy

This strategy calls for pricing the home at Fair Market Value looking at the most recent sales, the homes currently listed for sale, the level of market activity, and any trends in the market.

The goal of this strategy is to attract a larger pool of active and qualified buyers.

This strategy is a great fit for sellers who really want to sell their home in a convenient time frame at a very equitable price.

Homes that are priced at ‘fair market value” typically…

–   Sell for more money on a dollar per sqft basis

–   Sell 4 times faster than homes not priced at “fair market value”

–   Sell within 5% of the original list price.

Strategy #3 – The “Event Pricing” Strategy

In this strategy the seller takes the pressure off themselves to pick the “right price” and squarely puts the pressure on the buyer to price the home.

In this strategy, your home is listed at a price where every qualified and ready buyer in the price range can clearly see the value of your home.

This price is going to be at the low end of the price range or even lower.

Rather than waiting to find out IF the buyers are going to be interested and at what price, now you are waiting to see how many buyers are going to bid and how high they are going to bid. The goal of “event pricing” is to generate multiple offers and create a bidding war.

This strategy is not for every seller. This strategy is best for the seller who really needs to sell their home and wants to sell sooner rather than later and wants to be sure they haven’t left any money on the table.

So which strategy is best for you?

The right strategy can only be determined by clearly defining your goals, priorities, and time frame for selling.

In today’s market, “Event Pricing” has proven to be very effective.  Again, this strategy is not going to be a fit for every seller.

“Event Pricing” is founded on the belief that buyers are looking for value and they are willing to pay for such property.

The biggest fear a buyer has right now is overpaying for a home. Therefore when a buyer finds themselves bidding against other buyers for a property it gives them more confidence in the value of a home and they tend to make stronger offers when they sense other buyers will also be making offers.

When a buyer sees that a home has been on the market for a while, or the price has been lowered one or more times, or no one else seems to be interested…. their fear of not wanting to overpay tends to take over and as a consequence they don’t bid as aggressively (if they bid at all) in these situations.

About Kendyl Young

2 Responses to “Price vs. Pricing Strategy”

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  1. This is a very useful way of looking at home pricing and the effectiveness of each of the three pricing strategies. Many home owners have a hard time selecting strategies #2 or #3 though, due to financial issues (such as being underwater already) or emotional issues — even though it may considerably speed up a home sale. I’ve addressed this aspect of the emotional side of home pricing in a blog post on 10/5/10 titled “Your Home Selling Price is Not Your Personal Price” at housesellingblues.com. The bottom line is to realize that we are not our home prices, and not to equate one’s worth with a lower price. By reducing the price to sell more quickly, we potentially gain more control over our future… which is a major aspect of “self worth.”

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