Why Value Range Pricing Deceives Home Buyers
When you begin looking at the listings for homes - whether you are a buyer or a seller - you may come across a type of pricing structure you have never seen before. This pricing strategy is known as value range pricing. Instead of listing a property at a fixed price, you may discover that a seller is listing his or her property using value range pricing - indicating that offers will be entertained between a low number and a high number. This may seem strange, but some real estate agents swear by it.
The term value range pricing can also be called other things including "range pricing", "variable pricing" and "value range marketing". Over the years I have had numerous clients ask me "what is value range pricing"?
Whether you use it is up to you, but it is one alternative approach to home sales that may be nothing more than a gimmick. Frankly, I am not a fan of this pricing tactic because of the deception it creates with buyers.
I will however, give you both sides as to why or why your wouldn't want to use this real estate pricing strategy. There are certainly pro's and con's to using value range pricing. If you ask me the con's far out weigh the pro's. You can be the judge by taking a look at the re-cap below of what value range pricing does for both buyers and sellers.
Marketing With Value Range Pricing
Most people consider this marketing method to have originated in Australia. It made its way over to the U.S. in 1995 on the West Coast, then to New York the following year. While it never took off nationwide, the use of value range pricing has continued in certain local areas of the country - especially in California. There are real estate agents that consider it a powerful tool in selling and other agents who consider it underhanded. Depending on your situation, though, it could prove useful in selling your home.
Say your home is worth $400,000. If you wanted to use value range pricing, you would possibly list the home as $375,000 to $425,000. Each situation would be slightly different, but many value range priced homes look much like this. With this type of listing you are telling buyers that you would be willing to sell your home for somewhere in this range.
The largest advantage to this type of approach is that it can bring buyers and sellers together that otherwise would never meet. Consider if you had listed the home at $410,000. This means that all the online shoppers only willing to spend $400,000 would never see your home in their search results. This could possibly be true even if you would actually be willing to accept a lower price.
The value range pricing approach gives you more room to negotiate and more opportunities for potential buyers to both see and consider the home. To use this method, though, requires a long hard look at what you are actually willing to accept for your property. Critics that insist this is a bait and switch approach assume that sellers will list a home in a range where they would never actually consider the lowest price.
If this is the case, it is a bit disingenuous. However, for most sellers there are a number of considerations that go into how much they will sell a home for. If all the right criteria are met, there is a lowest price you could part with the property that might be perfect for a potential buyer.
Using Value Range Pricing
You can imagine how frustrating it would be as a buyer to see a home listed for a price only to discover that the seller is in no way willing to accept that price. This is why if you are going to use value range pricing, you must take the time to think it through. What becomes very discouraging for buyers is when the price they see displayed from a search on the multiple listing service is at the low end of the range and is not a price the seller would be willing to accept.
For example a home value range priced from $500,000 to $550,000 where the seller is really looking for something over $525,000. The price displayed to a buyer online however is $500,000. Without reading the fine print a buyer would assume they are looking at a $500,000 home.
It is not a good thing when the buyer finds out that is not actually the case! If value range pricing is not common in your area some buyers and agents are going to have one word come to mind - deception!
Many multiple listing services including the one here in Massachusetts do not allow a method by which a buyer clearly knows there is value range pricing. The only way a buyer knows is by reading the comment field which often times buyers just skim.
Imagine calling your real estate agent to schedule some showings. You head out the door thinking you are looking at homes priced around $500,000 when in reality you are really looking at a home priced between $500,000 to $550,000. So if the seller really expects to sell their home near $550,000 and you only qualify to spend $500,000 guess what just happened?
If you guessed everyone's time was wasted you are 100% correct. The agent, buyer and seller all wasted time by having a showing to a buyer that wouldn't be able to purchase the home. This is a pricing tactic that I have seen some real estate agents use in the Franklin Massachusetts area. It clearly is not that effective or more people would be doing it. Franklin is one of many towns I work in. Rarely do you see it anywhere else.
Price Your Home Correctly
With value range pricing it is generally recommended that you start at a range of about 5 percent above and below your home's estimated value. Just because you are marketing a home using a certain pricing technique doesn't mean that it allows you to overprice your home. If you overprice a home regardless if you use value range pricing or not, it will not sell! The risks of overpricing a home are numerous.
Over the years I have seen many homes with value range pricing where the actual value of the home did not even fall into the range. The Realtor/seller priced the home too high. A gimmick like value range pricing does not cause people to overpay for homes. If that is what you are thinking then don't even consider using value range pricing as a marketing tool.
Discuss with your Realtor whether the approach would be right for your property and work with your Realtor to determine the criteria for your pricing. What would make it worth it to sell at the bottom part of your range? What would keep you from doing so? Establish fair rules to go by when the offers start coming in. You are never obligated to accept a price you do not think is fair. Just determine ahead of time what fair actually means. There are a number of ways home owners get their price wrong. Don't let value range marketing be one of them!
My Thoughts on Value Range Pricing
In the long run you are better off just pricing your home in a range that is close to the actual value and forgetting about value range pricing! This would especially be the case in a strong market where stepping outside the norm would not be necessary.
Pricing a home is an art and a skill. It is in fact one of the most difficult jobs a real estate agent has when representing a seller. If you get the price wrong on a home everything else you won't mean a hill of beans. All the marketing in the world won't sell an overpriced home!
One of the unfortunate part of the real estate business is lots of Realtors don't have any pricing skills. Do you know how many homes see their prices dropped every day across the country? A ton! While there are times this happens because the overall market is dropping in value, most of the time it's because the home was priced WRONG!
The value range pricing strategy is actually perfect for the real estate agent who doesn't have a clue about setting the right price for a home. In fact value range pricing could be re-named "I don't know what the hell I am doing pricing".
Everyone knows the Realtor in town who consistently overprices their listings. You know the one - nine out of every ten listings has a price reduction. Some of these agents just don't have any pricing skills and others intentionally take overpriced listings.
This type of agent now has the perfect fallback plan. Not sure about the comparable sales? Hey lets just value range price it. Now we don't need to be accurate - brilliant!
Folks if you want to sell your home for the most money forget about pricing gimmicks. Price your home at or near the market value and you will see the results you want. History shows us over and over again that a home priced properly on day will fetch more money than homes that aren't. Price reductions and extended days on market are your enemies.
If you started with value range pricing and realize it was a mistake getting your home to the right price is critical. There are certain criteria that tell us when to drop the price of a home. Use this as a guide to know when it is time to adjust your homes price.
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