The pricing strategy you choose to sell your home can either make or break you. The key is to choose a pricing strategy that balances your expectations with the market’s perceptions of what the home is worth.
That process isn’t as easy as it sounds. If you set the price too high the home will sit on the market for longer as buyers move on to lower-priced homes, whereas pricing it too low risks leaving money on the table.
As a smart seller, you will study the market, consider what other sellers are doing, what buyers want to pay and consult with an experienced local real estate agent before settling for a given price.
Home pricing strategies take into consideration the thinking formulas that drive the way humans make their buying decisions. It’s part science, part buyer’s psychology.
If done correctly, the listing price should create a sense of urgency and scarcity. Those are strong emotions that make buyers want to make an offer right away.
Ask yourself the following questions:
The answer to each of those questions will provide you the framework that will allow you to differentiate which home pricing strategy works best for you.
Pricing Strategies for Selling Your Home
Sellers tend to gravitate towards setting a high asking price and that is natural; if you ask a person, whether they want more or less money for their home, the answer is obvious.
BUT… remember that the goal is to sell your home for the most money not coming up with the highest asking price.
The #1 search criteria home buyers use is the price.
If there are two similar properties available for sale on the same street, and both homes appear to be in a similar condition, but one home has an asking price of $610,000 while the second home has an asking price of $620,000 which home do you think will get the highest number of interested buyers?
Overpricing historically results in a lower sold price. The thing is buyers like to compare properties; so when a buyer compares two similar properties but one has a higher price than the other, that buyer is going to choose the lower-priced home every time.
Here are some more reasons why it is not a good idea to price your home above the market value:
For instance, back in 2018, my friend Ricardo wanted to sell his house; he didn’t need to sell immediately and he wanted to get no less than $850,000 for his home. Another similar house had sold for $810,000 a week before.
It took two months for the right buyer to walk through the door, but Ricardo was able to get what he was looking to get because he could afford the risk of keeping the home unsold for as long as it took.
A newly listed property ALWAYS gets showings unless its price is above market value.
When that a new home comes on the market, it creates a sense of urgency on buyers as everyone sets their eyes on the shiny new listing; you should take advantage of that with an adequate pricing strategy.
It’s a market-proven phenomenon – buyers are mostly interested in buying properties from new listings (within the last 20 days).
When a property has been on the market for 30 days, buyers offer much less money than they would on new listings. That’s a different kind of buyer; a more savvy, a less emotional buyer that knows exactly what they want and how to get it.
It’s alright to do business with that kind of buyer, but the longer the home is on the market unsold, the less negotiating power the seller is going to have.
This can be an effective pricing strategy especially if you are in a seller’s market. During a seller’s market, more buyers are looking to buy a home than there are homes for sale, thus homes are typically sold fast (within the first 7 days of going on the market).
More buyers on the market mean sellers have greater control over asking prices, but this strategy only works if you live in a desirable neighborhood.
The low price then creates a sense of urgency among buyers which compels them to make an offer; the more offers there are, the higher the offers are going to be.
In a bidding war situation, buyers compete against each other, typically in two rounds; in each round, the buyers must submit their best offer for the seller to consider which one to accept.
Pricing below market value in hopes of a bidding war can backfire
For this strategy to work successfully, there is a time and place. If the home is not sold within the first 7 days, you should change the price to the real market value immediately or risk signaling to the market that the fair price you are looking for is the low asking price.
Time: You can use this strategy only if you’re in a seller’s market cycle and it helps if you have little or no competition in your neighborhood. So before deciding on the asking price, gather some intel.
Talk to your neighbors to find out if there will be another home on your street or neighborhood that will be on sale at the same time as yours; the less competition you have the better.
Place: Location is important when selecting the pricing strategy – if the property is in an area with weak demand there are higher chances of this strategy backfiring.
Is it better to overprice and negotiate the price or underprice and hope for a bidding war?
Historically, overpricing leads to getting less money in the sale of your home. Homebuyers like to compare asking prices with what similar homes sold for and with asking prices of other homes available in the market.
If a home is overpriced, buyers are going to have a hard time seeing the value of it. Then the home is going to sit on the market unsold for a long time and people are going to start thinking that there is something wrong with the property.
That will lead to only getting low-ball offers or no offers at all until the price is reduced.
A safe, yet successful strategy is to price your home at or near the home’s market value. However, you will have to make sure you’re working with an experienced real estate agent who can help you determine the home’s true market value.
Your real estate agent will help you determine the true market value by analyzing the following:
However, you should keep in mind that the market value is not a fixed number but a moving target and the success of your strategy will depend on whether you’re targeting the right kind of buyer, existing market conditions, and the time of the year you decide to sell.
This is a common pricing strategy that gives a psychological impression that the buyer is getting a good deal.
For example, a price of $699,000 may seem more appealing than $700,000. It is simply a psychological trigger. I, for instance, would be open to buying a car that under $50,000; but if the car’s price is over $50k, I wouldn’t consider it.
The same happens when it comes to homes.
Research shows consumers place more emphasis on the left digits, so they retain in their mind only the left few digits as the brain takes mental shortcuts to remember the whole number. Thus $699,000 becomes a lot more attractive than $700,000.
There is a reason why retailers like Walmart or Home Depot use this strategy; it’s because it works. Homebuyers budget what they can afford in increments.
A strategic price point is an asking price that is determined in a way that allows it to compete with other prices and maximize the potential of obtaining the highest sale value.
Most homebuyers consider homes that are between price ranges that are separated by ten or twenty thousand increments.
Thus a price such $699,000 nets the same number of buyers than a price of $695,000 but with a price of $695,000 you’re not going to attract the highest offer in the price range.
The other day I was reviewing some MLS listings and came across a property listing with an asking price of $652,500 and thought to myself who in their right mind could list for such a bad number?
When you ask a buyer who’s looking to buy a house how much he/she can afford their answer is will be a nice round number such as $650,000, or $680,000, or $700,000 or something along those lines.
So if the strategic price points are apart by $20,000 or $10,000, why would someone use a list price of $652,500 which is $2,500 higher than the $650,000 strategic price point and $7,500 lower than the $660,000 strategic price point?
The better the condition the home is in, the easier it is to justify the price and the more offers you will receive.
Sometimes buyers need justification that proves the asking price is fair, so be ready to provide data and examples that back up why the home is worth the price you are looking to get.
A comparative Market Analysis (CMA) can be a great tool that incorporates the factors of a home’s price. By using a CMA report that contains the below factors, you will have the opportunity to choose set an asking price that will be attractive to potential buyers, yet high enough to realize the value that your home deserves.
You may want to take advantage of that psychology by choosing the right pricing strategy, but remember the other elements that should complement your approach such as the way the home is presented, choosing a good negotiator realtor, and marketing the property.