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.
Today, May 21, 2019, 35% of the homes on the market have reduced their price. One third adjusted their asking price downward in a very strong seller’s market.
Bonus Read: What’s My Home Worth? A guide on pricing homes.
The list price matters.
These statistics clearly indicate how difficult it is to pick the exact price a home will sell for.
There is more than one 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 “Traditional” Strategy
We call this strategy “traditional” because pre-internet this was the most popular pricing strategy in the market.
In this strategy, a seller prices their home at the high end of the price range or even beyond the upper limit (typically 10% or more above fair market value).
There are four main reasons most sellers employ this strategy.
- The seller thinks their home is worth more than what the numbers show.
- The home is unusual and hard to value
- The seller wants to leave “room to negotiate”
- There is no hurry to sell and/ or is not 100% motivated to sell.
Few serious sellers use this pricing strategy today. The internet fuel buyer will completely ignore a home with too high of a price. They do not come to look at the home and they do not make offers of any kind.
Strategy #2 – The “Fair Market Value” Strategy
This strategy calls for pricing the home right at, or even a tad below, the anticipated sales price.
Here are the factors a seller considers to set a fair market value
- Study the most recent sales in the area
- Consider the homes currently for sale
- Analyze the current market trends in the neighborhood
- Factor in the economic trends of the region
A home that has a successful Fair Market Value will look like the best value for the price on the market.
The goal of this strategy is to quickly attract a large pool of active and qualified buyers.
This strategy works 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…
- Get more money on a dollar per sqft basis
- Attract a contract 4 times faster than homes not priced at “fair market value”
- Sell for at or above the original list price.
Strategy #3 – The “Event Pricing” Strategy
The seller takes the pressure off themselves to pick the “right price” in this strategy. The buyer must figure out what it will take to beat out all other bidders on the home.
Every qualified and ready buyer in the price range can clearly see the value of your home when you use this strategy.
This price is going to be at the low end of the price range or even lower.
The goal of “event pricing” is to generate multiple offers and create a bidding war. The dynamic changes from IF they will buy to HOW MUCH will they pay to buy.
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?
You determined the right strategy by clearly defining your goals, priorities, and time frame for selling.
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.