I’ve said this before, but it bears repeating: choosing the right list price (also referred to as your pricing strategy) when you sell your home is probably the single most important factor in determining how much your home will sell for and how quickly it will sell. This information isn’t only important for sellers. As a buyer, it’s important to recognize a seller’s pricing strategy so you’ll know what the seller expects. This way, you’ll avoid overpaying if the seller expects less, or wasting your time making a reasonable offer on a vastly underpriced home when the seller has no intention of entertaining an offer that isn’t well above list price. (The way to recognize the seller’s strategy is to know the fair market value of the home and compare it to the list price. Or ask your Realtor.)
People often ask me “What’s your pricing strategy?”, especially at this time of year when lots of people are thinking of selling in the next few months. I’m not a pair of tube socks – one size doesn’t fit all. There isn’t one pricing strategy I use in all situations because each client’s situation and goals are different.
Here are a few of the different pricing strategies you’re most likely to encounter:
- The ‘intentionally low’ list price: This is when the list price is set very low on purpose in the hope that the low price will attract multiple offers which will drive the price up. It works best when the market is hot and your home will appeal to a large number of buyers based on its style, location and price.
- The ‘bang on’ list price: “This is what we think our home is worth and we’re very reasonable people so if you pay us this price we’ll sell you our home.”
- The ‘play it safe’ list price: This is when you list a little bit above the fair market value of your home because, even though you have a pretty good idea of how much your home is worth, you want to leave some room to negotiate or hope a buyer might want your home badly enough to pay you slightly more than its value.
- The ‘intentionally high’ list price: If your home is somewhat unique so it’s difficult to estimate its market value and you won’t be insulted if someone makes you an offer that’s substantially less than your list price, you might decide to set a high initial list price, well above what you “think” its fair market value might be, to make sure you don’t undersell it.
So which strategy do I use? I use them all (not at the same time), depending on the circumstances. And by the way, it isn’t me who picks which strategy to use. I explain the different options to my clients, give them my opinion and then we talk about which strategy THEY want to use. Some of the factors we consider when trying to determine which strategy will be best for them are:
- Have they already bought another house?
- How quickly do they need to sell? Do they need to have an agreement in place before a certain date in order to qualify for bridge financing?
- When do they want to close?
- Are there a lot of potential buyers for their home or a few?
- How’s the market for homes like this? How quickly are they selling? Are they receiving multiple offers?
- How long are my clients willing to live with their home on the market? Are they willing to have it on the market longer if that gives them a better chance of getting a higher price?
- If they list it low and it sells quickly, will they have regrets thinking they could’ve sold it for more if they listed it higher? Conversely, if they list it high and it takes a long time to sell, will they have regrets thinking they overlisted and missed out on opportunities to sell?
While I don’t have any set rules about when to use which pricing strategy, here are some generalizations about when I use each one:
- The ‘intentionally low’ list price: First off, the home has to have very broad market appeal with a good chance of attracting multiple offers. Second, when most other similar homes are using this strategy, you’re almost forced to use it because it’s what buyers expect. If you list higher, they won’t look at your home. I don’t like using this strategy because I find it misleading and there’s never a guarantee you’ll get multiple offers or that they’ll produce a price that’s at least as high as fair market value, but sometimes it’s in my clients best interests to use this strategy because of what other similar homes are doing.
- The ‘bang on’ list price: To use this strategy, we have to be very confident in our estimation of the fair market value of the home so there has to be a sufficient number of comparable sales to establish value. My clients also have to be confident in their ability to say no to offers that are less than market value and to accept that they didn’t sell their home for more than list price. To minimize the risk of them wondering if they could have sold for more than list price, we’ll usually set an offer date to make sure all buyers have time to see it. This increases the chances of multiple offers. If their home is worth more than its list price, a buyer is most likely to pay more than list price in a multiple offer situation. And if it’s not worth more than list price, chances are there won’t be multiple offers and it won’t sell for more than list price, but at least my clients will be able rest easy knowing they took their best shot at obtaining a higher price.
- The ‘play it safe’ list price: When the market isn’t crazy hot, we have a fairly good idea of fair market value and my clients want to make sure they don’t leave any money on the table, we’ll list for a bit above fair market value. We’ll also usually hold off on offers with this strategy, too, in case there are multiple buyers out there just to make sure we don’t leave any money on the table.
- The ‘intentionally high’ list price: I don’t like this strategy because I find it to be misleading, too, but it does have its place in certain circumstances. Sometimes a client wants to test the market to make sure their home isn’t worth $100,000 more than what we estimate its fair market value to be. Sometimes a house is so unique that it’s impossible to determine fair market value so we price it high to see how the market reacts and if it doesn’t sell we reduce the price. Whatever happens, the market determines the value because a home is only worth as much as a buyer is willing to pay for it. There’s an expression we Realtors use: “The market has spoken.” It applies to all situations, but more so to this one in particular.
There you have it – listing strategies in a nutshell. I’d be happy to talk to you about your options if you’re thinking of selling in the near future. Also, if you know anyone who is interested in learning how the market works and would like to receive the kind of help that involves honest answers, straightforward advice, no pressure and being treated like family, please let me know the best way for me to connect with them because I’d like to offer them this kind of help. And as always, don’t be shy if you have any questions or comments about this post! Thanks for reading.