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Homeowners: Pricing Strategies That Work

Money.
You want the most amount of it you can possibly receive for your home.  As an agent, I want the same thing.  First and foremost, I have a fiduciary responsibility to you, my client, to look after your financial well-being before my own.  In doing so, I assure myself a commission check for a job well done and an excellent reputation leading to a long, successful career.   Our goals are 100% aligned but it goes even deeper.  Your agent wants the highest dollar amount and the best terms for you.  Whether the highest offer is the best one for you depends on your goals.  Different strategies work for different goals, so if your agent hasn’t inquired about yours, be sure to initiate the conversation ASAP.

Now that we’ve established that we share the same goals, what next?  It’s time to set the listing price.  Before we get to the most common pricing strategies, here are a few important things to consider:

•THE LISTING PRICE IS ONLY THE SELLING PRICE IF YOU WANT IT TO BE
•The value in a property is dictated by the market and by how much a Buyer is willing to pay to have it.
•The comparable value only matters in a Buyer’s market.  In a Seller’s market with multiple offers, the comps become relevant only for appraisal value.
•A Buyer with financing can offer a ridiculously high sum for your home, however, keep the appraisal in mind. 
•If the appraisal comes in below the offer price, the loan amount decreases, leaving the Buyer to pony up the difference in cash, the Seller to negotiate a lower price or leading to the cancellation of escrow.
•All-cash Buyers have no appraisal or loan contingency, usually offer shorter escrows and an easier sale, HOWEVER, all-cash offers generally come in much lower than asking.
•Homes that sit on the market become less attractive to Agents and Buyers.  For example, a house on the market for 60 days may inspire people to wonder what is “wrong” with it.

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Common Pricing Strategies:

1.  At-Market Pricing

The Play:  Price your property right at fair market value.  This one is a crap-shoot.  Expect a mixture of low and just-above-asking offers, but the numbers don’t usually skew too far from asking price.  Today’s Buyers know what has sold in your neighborhood.  If they see that your home is at fair market value, they’ll usually stick with a number around that price so they don’t “overpay.” It’s all psychology.

Example:  Your home is worth between $800k and $850k.  You price it at $825 and most likely sell it for around that price.

When to Employ:  This strategy is perfect for a Buyer’s market where inventory is high.  Many Sellers choose this option when they are not comfortable with “Price Low, Sell High” (#3) below.

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2.  Price High, Sell Low

The Play:  Price your property at it’s upper range to bring in lower offers which reflect your true goal price.

Example:  Your home is worth between $800k and $850k.  You price it at $860 and close for $845k.

When To Employ:  This can be a good strategy if you have a specific number that you have to hit to pay off a mortgage, liens or if you just have a set price in mind that you want to meet.

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3.  Price Low, Sell High

In my experience, this is, by far, the most effective strategy for selling a property quickly and for the highest dollar amount. 

The Play:  Price your property low to entice multiple offers and start a bidding war, bringing the price to the highest point the market will allow.

Example:  A property is worth between $530k and $560.  Price the property at $525 and get offers in the $550s.  I employed this strategy on a home listed at $525.  We received multiple offers and closed at $561k.  It then appraised for $564k.

When To Employ:  This strategy works in any market where it’s common to have multiple offers.

Addressing Seller Concerns:  A common Seller concern when introduced to this strategy begets this question, “if I list my home at a lower price and someone offers that price, I have to accept it, right?”  After speaking with legal counsel, it is my understanding that this is not true.  The offer from a Buyer is non-binding on the seller until s/he accepts it and the Seller is not obliged to accept any offer at any given time*.

Remember, THE LISTING PRICE IS NOT THE SELLING PRICE unless you want it to be.  It’s merely a strategy, a jumping-off point to get the ball rolling.  This method is effective because you can’t underprice a home but you CAN overprice it.  There is no money being “left on the table.”  Trusting that your agent is looking out for your interest and not just advising for a quick sale, is paramount.  It’s crucial to have an agent you trust. 

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Closing Thoughts:

Pricing your property correctly and strategically at the onset not only significantly increases your chances of a quicker sale, but can also earn a higher priced offer.  Yes, the out-of-the-ordinary can happen and someone could come in with an astronomical, all cash offer in response to any pricing strategy.  The question is…do you hedge your bets and do what is known to be effective or do you dig-in and risk sitting on the market with diminishing Buyer interest?  Ultimately, it’s up to you.

*Please consult with your lawyer.  I am not a lawyer and thus, cannot give legal advice.

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