The following is based on many true stories, in no particular order...
Price It Low & Watch It Go
Rating: A or D.
Depending on market conditions, this strategy might be highly appropriate or wildly illogical.
The home is priced at $599,900 with an offer presentation date next Wednesday at 6:00pm. Make no mistake, the sellers do not want a full priced offer. They want 117% of asking, otherwise known as $100,000 OVER the asking price. Or more.
This strategy is either (love it or hate it) the appropriate strategy, or a misguided attempt at finding a buyer. In a market with low inventory and high levels of demand, pricing it low and holding back offers is almost a necessity to allow enough buyer showings. Otherwise, it would be sold in 5 minutes to the first person through the door which would likely leave money on the table. Again, love it or hate it, I’ve yet to meet a seller who enjoys leaving money on the table.
Where this approach flops is when there is ample inventory (no buyer FOMO), and mediocre demand. A buyer will say “no thanks” and keep looking while the seller is standing in their driveway with hat in hand.
In a nutshell: You need to see strong evidence before signing onto this strategy.
We Can Always Come Down But We Can’t Go Up. Afterall, We're Not In A Rush.
Rating: C
Also known as the “we want to give it a try” pricing strategy. “We’ll reduce in 3 or 4 weeks if it doesn’t work.”
This strategy comes with risk which vary based on the market conditions. The only time you can get away with the “we’re not in a rush” approach is when buyers are in a rush. When buyers are feeling fear of loss, they will overlook the obvious pricing cushion.
If the buyers have choice, the overpriced home will only help them rationalize and buy the other home down the street. “Well, if this house is $590,000 and that one is $550,000, and they’re both similar, why would I spend the extra $40,000?”
In a nutshell: Be careful with this one. You may find yourself chasing the market which is an expensive journey.
Market Value + Negotiating Room.
Rating: B
In most market conditions, this strategy will work, provided that the room left for negotiating is a reasonable size. If market value seems to show $750 – 775,000, a listing price of $789,500 should be fairly safe. Again, you’ll want to see at least a few comparable sales that rationalize the value, but being within a stone’s throw of what appears to be market value should keep the buyer’s fear of loss intact.
Just remember, when an offer comes in $40 or $50,000 under asking, you have built in negotiating room. After 3 or 4 signbacks, you’ll hopefully get to a price that you’re happy with.
In a nutshell: Sure, have a bit of negotiating room, but keep it within range.
Follow The Bouncing Ball.
Rating: D
It’s listed at $799,900. Then $799,800. Two weeks later it is $789,900. Then a new agent lists it at $775,000. Nothing happens. Frustration kicks in. $699,900 with an offer presentation. “The offer was too low!” It’s re-listed at $770,000. Reduced to $769,900. “Wait. The house down the street sold. Let’s put it back up!” To $845,000 we go! And the ball bounces, and bounces, and bounces…
The buyer doesn’t know what to do with a house like this. Spoiler alert, after 239 days, 4 different Realtors, 11 price changes and the seller experiencing Pearson Airport level frustration, the house sells for $710,000. Which is ironically, LESS than the offer they received 5 months earlier.
In a nutshell: it’s a terrible idea. Don’t do it.
We Don’t Want To Give It Away But We Also Want It Sold.
Rating: B+
This is most sellers. They want fair market value, and they should expect nothing less. This is a fairly traditional approach where a home is properly prepared for market, magazine-worthy photography and video create a strong marketing presentation and then the home is priced reasonably.
Where the slope of this approach gets slippery is when the “but” in the title of this one adds on more money than it should. Every seller’s definition of “we don’t want to give it away” will be different. As a seller, it’s super helpful to be honest with yourself and ask yourself one question. “If I was the buyer, and I looked at my home and the other similar homes on the market, how would I feel about my asking price?”
In a nutshell: put yourself in the buyer’s shoes and make sure you’re staying true to your approach.
We Don’t Care If We Sell. If Someone Buys It Great! If Not, We’ll Stay.
Rating: D
Translation: It's really overpriced. Like, a lot overpriced.
This approach serves no one. Regardless of how much the seller “doesn’t care if it sells”, they’re going to get frustrated. The Realtor is going to waste time and money on a property that won’t sell. And so, equally unfortunate is this overpriced home clogs up and adds confusion to the marketplace. Imagine a real estate market loaded up with houses where the seller doesn’t care if they sell. Not a pretty picture.
In a nutshell: Please don’t.
Market Value Bullseye Price.
Rating: A
In most markets, this is the approach to take. You get your home looking its best, have some beautiful photography and video completed, and present your home to the buyers in your marketplace.
At that point, buyers’ motivation will increase, and showings will start. Your home will garner attention and have a buzz around it. Your Realtor will get calls or texts from other Realtors asking about your home. “Please keep me in the loop if you get any offer activity!”
This isn’t giving it away. This is creating the environment to get the most buying activity and best offer(s) possible presented to you in the first week or two on the market. There is a clear difference in the quality of offer(s) you’ll receive on day 8 of the listing when compared to day 48.
In a nutshell: Yes. This is how to leverage (most) market conditions and sell successfully.
The reality is, regardless of market conditions, pricing strategy is always important. And in some market conditions, it is exceedingly important.
I'll leave you with this.
You're on vacation, walking along one of those idyllic boardwalks that is lined with restaurants. Out front of each restaurant is an eager host armed with a menu sitting atop a pedestal. All of the restaurants look appealing. You're pretty hungry but not ravenous enough to eat at the first place with tables and a cook.
You stroll and look at a menu. "This place looks nice". Then you stroll to the next option. "Oooh, I do feel like seafood pasta". You head to the next place. "It looks delicious but yikes, look at those prices!"
After looking at 7 or 8 options, that place with the seafood pasta and prices that make sense is chosen.
When a buyer has enough options, they can zero in on exactly what they want, and the value they're willing to pay. If your restaurant competes with all the other restaurants on everything except price, you're going to struggle getting enough bums in the seats.
Make sure your food and the atmosphere and the pricing is all in alignment with the surrounding market conditions. That is the path to having a line-up out front on that boardwalk.
Want to discuss your home and what to do?