Pricing:  Importance of a good strategy

 
Only a willing and able buyer determines fair market value. If a property is reasonably priced and comprehensively marketed, then the market will determine its fair value.  Since pricing is a dynamic function in real estate, one needs to be in tune with the local market trends.  The initial asking price of a property should reflect its value in the current market as well as the market direction in the coming weeks. 


Real estate sale prices are most strongly driven by inventory, interest rates, buyer confidence, the time of year and the economy.  The initial pricing and any future adjustments must be well thought out.  Below are examples of pricing mistakes to be avoided:


Classic Pricing Errors


  1. * Price based upon “needs” instead of market realities

  2. * Emotions affecting objectivity when assessing value

  3. * Unsuitable, i.e. non-comparable, properties used for the CMA (comparative market analysis)

  4. * Assumption that one has to price high because buyers will always want to negotiate down

  5. * Accepting pricing advice from non-professionals or agents seeking to “buy the listing”


The Dangers of Overpricing


“One crucial aspect of selling a house is correctly establishing its initial asking price. If a seller prices a house near its fair market value, the house usually sells quickly for top dollar.


If, on the other hand, a seller grossly overprices a property, it tends to linger on the market month after month…Ironically, instead of getting more money… [Over-pricing] usually stigmatizes a property and reduces the eventual sale price to less than it would have been with more realistic pricing.”


House-Selling for Dummies


The basic truth: the vast majority of serious buyers and their agents will not make offers on properties they consider significantly overpriced. Overpricing wastes the optimum moment of Buyer & Broker interest in the property precisely when it’s brand new on the market and the marketing plan is in full implementation.

Sitting on the market, overpriced properties get “stale”


This kills the sense of urgency in the buyer’s mind that the marketing plan is intended to create. The sense that they must act quickly with a strong, clean offer which typically leads to the highest sales price—either through competitive-bidding, multiple-offer situation or the perceived threat of the seller receiving other offers.


This dramatically reduces the value of the property in buyers’ minds because they assume there must be something wrong with the property. Just as competitive offers enhance value in buyers’ minds, an apparent lack of interest deeply reduces perceived value.

Overpricing helps sell competitive properties—as they stand out as a good value in comparison.  Overpricing usually ends with the property selling for less money than if the property had been properly priced to begin with.


Buying the Listing


In order to win the listing, some agents suggest a list price considerably higher than market conditions and comparable sales justify—because these agents believe this is what the seller wants to hear.  This is called “buying the listing.” Because of the factors mentioned above, this is a huge disservice to their clients.