Home pricing strategies

Posted on July 16, 2010 by JA/LEX Real Estate in Shippensburg homes for sale Shippensburg real estate Shippensburg relocation

Home Pricing Strategies
Brought to you by: JALEX Real Estate Services

You’re selling your home. Here’s the big decision: Should you set the price high, expecting buyers will bargain you down eventually? Or should you start low to attract a lot of attention and get the inevitable discounting over with upfront?
Tips for pricing your home
You might be surprised how important this decision is.
Experts agree that starting high with the idea that you can always drop it later is a costly mistake. Pricing doesn’t just determine how much money you stand to make it also dictates whether buyers even give your home a serious look.
With so many competing properties for sale, yours has to pop out immediately as a good value or buyers will move on, unlikely to return. You get one first shot at your home’s debut, and it’s easy to blow it.
The amount of traffic that a listing gets in its first week is five to seven times what it gets in its ensuing weeks. Let’s say you lower the price later. No one will notice. You really are broadcasting that discount to a much smaller audience of buyers and will have the perception it is damaged goods.
It’s worth more because it’s mine
Your job as a seller seems simple: Price it right to make the sale. You analyze the competition thoroughly and cold-bloodedly. You know the prices of the properties that have recently sold in your neighborhood and their similarities to and differences from your home. You know the current competition and understand precisely what homes a little better and homes a little worse than yours are selling for. That shouldn’t be too difficult, for Mr. Spock. But for us humans, emotions, history, attachment and expectations get in the way.
“The buyer is looking at ‘What are comparable houses selling for?’ and the buyer is thinking, ‘What did I pay for this six years ago?’” says John Gourville, a marketing professor and expert in buyer behavior at Harvard Business School.
Home sales and purchases are loaded with illogic and irrationality. Compounding the problem is our tendency to cling to things. Behavioral scientists try understanding why. Economist Richard Thaler of the University of Chicago’s Booth School of Business describes this “endowment effect,” the tendency for things, even little things, to become worth more in our eyes once we own them. Researchers find that the pain of a loss is two to three times greater than the joy of an equivalent gain, Gourville says. In other words, it’s hard to accept receiving less than you paid for something.
But in this difficult market, realistic goals may be making a quick sale, getting the best return possible and preventing buyers from niggling over price. In areas clogged with short sales and foreclosures, a realistic goal may be making any sale at all.
Here’s an arsenal of expert pricing tips. These tricks and strategies to help you gain the upper hand.
Making the debut count
Tip No. 1: Don’t get penalized for starting too high. Identify your home’s true value, and set the price slightly under that. At worst, you’ll lose about $10,000, but you might make a quick sale. If you’re further under market than that, buyers are likely to bid the price back up.
An error on the high side, however, can cost you more than just time. Once you drop your price, buyers smell blood. They say, “He’s knocked $30k off the price; he’ll do it again.” It’s death by a thousand cuts.
Don’t think no one will realize you’ve dropped the price. The best listing sites show how many times a price has been reduced and by how much, as well as how long a home has been listed.
Tip No. 2: Test your price against reality. Try this: Pretend you’re the buyer. Search online in your price range in neighborhoods with similar quality schools about the same distance from downtown or the nearest major work center. If your place doesn’t pop out as an obvious value next to other properties people can buy for the same money, your price is too high.
Altos Research, a Mountain View, Calif., company that analyzes data for the real-estate industry, routinely compares initial listing prices around the country with final sales prices. Sellers generally start out with prices a bit too high, forcing them to later offer discounts to get a deal done, says Scott Sambucci, Altos’ vice president of sales and analytics. Nationally, he says, discounts are averaging 8% to 9% off a property’s last listing price.
Tip No. 8:Stake out the top end of a price range. Buyers are prone to creep into the price bracket above their target range. Buyers always spend a little more than what they first think. Nine times out of 10, if they’re looking for $300,000, they’re going to bump that to $350,000.
Today’s low interest rates encourage this: Each additional $10,000 in price (at 5% over 30 years) adds only about $54 to the monthly principal and interest.
Once buyers open the gate to a higher price bracket, they focus on homes at the higher end of the range. Since they’re spending more, they’re looking for a big bump up in quality.
The lesson for sellers: Choose your competition wisely. Once buyers hit the search button, they see all homes in a price range at once. Your $210,000 home will suffer in their eyes next to one at $250,000.
If $210,000 is your correct price, in this tough market it’s best to scale back to the top of the $175,000 to $200,000 category.
Interesting note: Homes on Zillow are much more likely to be priced just under a break point than just above it. You’ll find three times as many listings in the $10,000 range just below a $100,000 increment as in $10,000 range just above it, the company says.
Tip No. 9: Don’t try to build in discounts. You can’t price your home for the lowballer. You’ll only get lowballers looking at your home. If your home’s condition is 95% the best it can be, price it within 5% of what you think the selling price will be. For example, if the house will sell for $175,000, add 5% to take it to $189,000. You can even try $200,000. But not $205,000 or more.
Tip No. 10: When you must drop the price, be decisive. When your home has languished on the market for months, you need to engage a fresh group of shoppers. An incremental discount won’t work. Bite the bullet and make your price drop substantial. How substantial? It depends on the property, the market and the psychological implications of the new price. A 15% reduction on a $240,000 property might be about right, except that it leaves the price at $204,000, so you’d also consider the added boost to be gained from dropping it to $200,000 or $199,000.