Price it Right

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Pricing Methods

If you want to be a successful seller, you must learn to think like a buyer. You probably didn't buy the first house you looked at. Few people do. On the contrary, today's home buyer spends weeks, even months, examining houses. To avoid over paying, many become experts on property values.

Remember, you can ask any price you want for your house. But it's not going to sell until you find a buyer who agrees it's worth the price you are willing to accept. And, since most buyer's obtain a new loan to finance today, the price also has to be what the lender agrees it's worth as collateral for the loan. Smart seller's know that while only one person sets the price, two people, a seller and a buyer, make a sale.

You can select the price for your house in many ways. You can use the "asking prices" and "sale prices" of comparable homes from a Comparative Market Analysis (CMA) to "factually" determine your house's value or you can base it on needs, poll friends, pay for a professional appraisal, or interview dozens of real estate agents until you find one with suitably elevated opinions of its worth. In the final analysis, they are all variations of two pricing methods.

Four Phase Pricing

This is prevalent, but ineffective. For a smart seller, pulling an unsubstantiated price out of the air is unacceptable. You could over value the house and become involved in a painfully slow marketing process that ultimately results in a lower offer. Or, you could under price it and risk losing money. Unrealistic seller's usually go through four distinct pricing phases prior to sale:

  • Phase One: "Fact" less Pricing - Some seller's decide to disregard any factual pricing method such as checking comparable property sales. Why? Some don't have agents and just don't know how, while others think that their house is infinitely superior to any ticky tacky comparables. They think their house's superiority will attract buyer's willing to pay more. Either way, this method generally results in outrageous over pricing.
  • Phase Two: Tiny Price Reduction - After several months of very few showings and no offers, the seller grudgingly makes a tiny price reduction which brings the asking price down from the outrageously over priced level to merely ridiculously over priced.
  • Phase Three: Change Agent - More months without results and two things happen. First, the seller gets a new agent (poetic justice perhaps for the agent who allowed the seller to believe price was OK just to get the listing), and second, they reduce the asking price to one that "leaves room to negotiate". Even though the asking price is still higher than the probable sales price, at least the new asking price has some basis in reality.
  • Phase Four: Let's Sell It - The seller ultimately accepts the validity of the comparable sales data and reduces the asking price to the proper "let's sell" level. Once the correlation between asking price and fair market value is established, the house sells.

Ironically, instead of getting fair market value with Four Phase Pricing, this method usually stigmatizes a property and reduces the eventual sales price to less than it would have been with more realistic pricing. This is why:

  • The selling agent (usually representing the buyer) can't justify an asking price that has no factual basis (comparable).
  • The property is slowly but surely buried by new listings coming on the market. It becomes "shopworn" or agents use it to sell other more realistically priced properties.

Pleasure, Pleasure, Panic Pricing

This is the method you can use to sell your house quickly and get the highest dollar. The key to this method is to establish a very realistic asking price when you first put your house on the market. You establish your asking price by analyzing houses comparable to yours in size, age, condition, location, and amenities. You use houses that have sold within the last six months as a basis for establishing the fair market value range. You also use houses currently on the market but you look at these to recognize trends (up and down) in the market. Don't be misled by houses currently on the market and use them as a basis for asking price. Remember, lots of sellers are using the Four Phase Pricing method!

  • Pleasure #1 - Your house has its best foot forward. You've cleaned it, polished it and staged it to look its best! A buyer walks in and "WOW!" they are delighted. They love the house. They realize they could live here quite happily.
  • Pleasure #2 - The buyers who have been shopping for several weeks or months and have become very savvy about property values are ecstatic when they see your asking price. They realize the property has been priced to sell, not sit. The become very excited.
  • Panic - The house has just gone on the market but before long lots of potential buyer's will discover the house. The buyer's panic. They suddenly realize that other people wanting to live in this area will also probably love it, realize it's priced right and snap it up and out from under them.

This scenario explains how Pleasure, Pleasure, Panic pricing creates a seller's market even in the midst of a buyer's market. This method put intense pressure on buyer's to perform quickly and at top dollar. Spirited competition forces buyer's to pay top dollar for your home.