Price High or Price Low?

Of course the right answer is to price right.  But most of the time “right” involves a range.  Should a seller price at the upper end or the lower end of that range?  As with most questions, the answer is it depends.  This where an experienced Realtor adds value.  Let me explain.

PRICING BASICS

When I am analyzing a home, of course, I pull the best comparables and make adjustments to those sales.  I add value for features the subject home has that the comparable does not and subtract value for features the comparable home has but the subject home does not.   After doing this with 4 or 5 comparables, I have a good idea as to what the subject would sell for.

If we are looking at, say,  Model B in a condo community and there are 5 Model Bs that sold in the last 6 months, there will be minimum adjustments and the suggested price range will be very small.

But is we are looking at a single family home in a community where each model is different and over the years owners have added additions, garages, decks, screened porches, etc. the acceptable range is a little larger because…

Pricing is both art and science.

Sometimes folks say, “I just had it appraised and the value was $x.”  Appraising sounds like a science but it, too, is an art.

Just this year, I had a situation where one of my listings received 2 appraisals.  The buyer had actually waived the appraisal contingency but the lender required an appraisal.  The home was under contract for $520,000 and the 1st appraisal came in at $490,000.  The buyer was very upset, thinking he had overpaid.   Really, that appraisal should not have even happened because he was in the process of switching lenders and the old lender forgot to cancel the appraisal.  The 2nd lender appraised the property and it came in at $535,000.

And a few years ago I was on the listing side of another deal where the lender required 2 appraisals.  It as a $320,000 sale and one came in a $285,000 and the other at $320,000.   I saw both appraisals and except for one comp the appraisers used the same comps and calculated dramatically different results.

So not even appraisers are  “scientists.”

Thus, when I sit with a seller, I often say the range is between $x and $y and then we need to decide where to go on that continuum.  Sometimes, the seller will say go above $y because if we…

PRICE HIGH, THEY CAN ALWAYS MAKE AN OFFER

This is a dangerous strategy for several reasons.

First, if you price a $500,000 property at $525,000, you may not get as many showings.  Buyers are armed with a ton of information and if it looks overpriced, especially when it is new on the market, they will pass.  The thinking is that the owner is being unreasonable.  They say to themselves and their agent, “We will just let it sit and see if they reduce the price.”  Then they forget about it because something new comes on that catches their eye.

And, second, you will be compared to other homes selling for $525,000.  They will be offering more value.  If a buyer is looking at $525,000 homes, they want the features a $525,000 brings.  They are not looking at $525,000 so they can buy a $500,000 home at market value.

So it is very unwise to to price above the suggested range.  But within that range there can be a case made for pricing at the upper end.

WHEN TO PUSH THE PRICE A BIT AND WHEN TO BACK OFF

This is where the art comes in.  Depending upon how many of these factors are present will determine where in the price range you should list.

  • If Inventory is low and it is a sellers market, push.  It it is high and and a buyers market, back off.
  • If inventory levels are modest overall but within your particular neighborhood, nothing is for sale and has not been for some time, push. But if you neighborhood is inundated with inventory, back off.
  • If the season is changing from a slower part of the year to a faster part of the year, push.  Heading into the Summer or holiday period?  Pull back.
  • If there is something unique about your home that is hard to place a value on like it backs to parkland where others in the neighborhood do not, you can ask more.  Perhaps there is extensive hardscaping which makes for an exciting backyard entertainment area.  (You will never get a dollar for dollar repayment for this but it is sometimes hard to know how much to add for such things.)  Or you have a unique curb appeal feature that makes your home stand out.  Even though it is the same square footage, these features may excite buyers and help them see their way to a few thousand more.
  • If there is a negative feature of the home that is hard to value such as it is located on a busy road, the usable part of the yard is smaller than the neighbors, the home backs to a power line or the topography of the lot is not exciting, go toward the lower end.  It is hard to know the exact value buyers put on these features.   The most common I get is a busy road.  Sometimes I am surprised how quick they sell and other times I am surprised at how low we need to go.
  • If the suggested price range includes a $50,000 or $100,000 number it is best to round to that number.  People search most often in $50,000 price increments ($25,000 on lower priced homes and $100,000 or more on higher priced homes but always in round numbers.)  So a home priced at $497,000 will capture the $450,000 to $500,000 buyer but lose the $500,000 to $550,000 buyer.
  • If the market is really hot, sometimes pricing at the lower end can cause excitement and create a multiple offer environment which will net you a better sale price than if you priced higher and got just one contract.  But this is a risky strategy.  If you only get one contract at the lower end, perhaps you would have gotten that same buyer with the higher price.

 

WHAT ABOUT IF ALL THINGS ARE EQUAL, WHICH WAY?

I will say that, all things being equal, you are better off pricing at the lower end.

You only get one chance to make a first impression and the greatest number of showings when you first go on the market.  Whatever the house, there are a group of buyers who are looking for something like your home but have not yet found it.  So as soon as yours comes on, they come out.  That may be 5 buyers, 15 buyers or 50.  But after that first rush, the only buyers you get are the ones new to the market. So best to be right early.

Homes that are overpriced, sit and then reduce.  Yet a price reduction does not have the same impact as that same price when a home is new to the market.  People say they will watch it but either forget or think that if it has been around for a while, they have plenty of time and will get to it eventually.

Anyway, the bottom line as I said, is that pricing is both an art and science.  An active, experienced Realtor is in the market daily,  knows the market temperature and can give you the guidance you need so that together you both choose the right path.

 

 

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