Value Range Pricing

In a seller's real estate market, buyers' agents developed gimmicks to win in multiple offer situations.  Now that it's a buyer's real estate market in Minneapolis and Saint Paul, the need for gimmick creation has been transferred to the sellers' agents.  Voila!  Value range pricing is being re-visited by listing agents.  Value range pricing actually publishes a range between the lowest price and highest price the seller will consider in an offer on their home. 

Okay, I'll bite.  Not every new idea is necessarily bad because it's new.  My logic is this.  When I represent the buyer purchasing a home in which I know the seller's lowest acceptable price, I'm still going to check the comps and see what the other homes are selling for in the area.  If the lowest price the seller will accept is still too high, I'm going to suggest the buyer write an offer below the lowest published price.  If the comparable homes in the area have sold for more than the lowest published price, I'll suggest the buyer offer the lowest published price.  Why pay more if the seller will accept less?

Just recently I found one home value range priced in our Regional MLS.  It's not common in the Minneapolis Saint Paul area . . . yet.  In some states, value range pricing has been around for a decade and is now really taking hold.  One example is San Diego county in California where value range pricing was done on 56% of the listings in 2004!  That's a lot of homes.  Value range pricing did not guarantee a higher purchase price for the home, but it did shorten the length of time on the market.  In Minnesota's real estate market that would be considered a boon on many listings.

Why the success of this marketing technique?  My first reaction is if the seller is willing to sell at the low price, why not list it at that price?  Why would buyers be more attracted to the house with a value range than one that is priced low?  What is the draw?  Is it possible that the buyer sees the "value" range much like buying clothing on sale?  They see the original price marked to the new discounted price and automatically assume they're getting a deal!  Bargain shoppers.  My mom bought 7 leaf bags of skeins of yarn which she never used because they were such a good deal!  Is that what value range pricing is doing for the buyer?  Thinking they have a bargain in hand?  My caution is to check comparable sales in the neighborhood.  The "range" the house is valued in may be higher than what others have sold for.  Ask your agent to check and make sure!

Comments

[Bonnie Erickson]

Obviously range pricing is somewhat controversial depending on where it's used. Broker Bryant's explanation makes sense in the ability to draw more buyers. I haven't checked out MLS yet, but am not sure the technique will work in our system.

[larry cragun]

A local major real estate company implemented this about 10 years ago and soon dumped it. It is one thing for an agent to do ranging when selecting a listing price, it is a whole new issue when publicizing it. Lar

[Bonnie Erickson]

Our area is seeing an rise in auctions. Prior to this year, auctions primarily occurred in the more rural areas. The buyers would see a property listed for $1.00 (yes, that's one dollar) and lined up by the gazillions to buy the cheap house. Those working with an agent were quickly informed that the house is not $1.00! More recently our MLS has added a yellow comment box that appears right under the $1.00 that discloses this is an auction property and when/where/etc. That has helped clarify things tremendously for the consumer.

Bryant, do you do your training with out of state agents? Maybe I should introduce the technique?

[Bryant Tutas]

Wow! Great and famous! I'll take it. The biggest problem with RP is that the Realtors that do use it, don't use it properly and this causes confusion for the Buyers and their Realtors. I used to be the only one in my area that used it but over the years I have trained many Realtors on how to use it properly. Now it is very common. So common, I may have to come up with another technique:)

[Bonnie Erickson]

Bryant, I welcome the great and famous Broker Bryant to my humble blog! Because Range Pricing is not common in our market, it is new and perceived as gimmicky. Many agents in our market view RP the same way. If it works and your client is getting the price they want, I'm all for it. I'll have to see if I can find the one RP listing that I saw prior to this post and see what the comments said. I think it was treated like an auction property where there are comments under the price at the top of the listing sheet describing that it was range priced.

[Bryant Tutas]

I have been "Range Pricing" my listings for about 10 years. The biggest misconception is that the low price is an "acceptable" offer. When RP a property, the whole purpose is to be able to place the property in the MLS at a below market value list price. RP when done properly, will have a range where the true market value of the property is in the middle of the range. Example: A property is worth $100,000. By the way, this must be true market value. Even in RP, pricing is crucial or you just end up with an overpriced listing. Anyway, normally a Realtor will list at say, $105,000 in order to achieve a selling price of $100,000. Using RP I would price $95,000 to $105,000. By doing this I am now able to place the home in the MLS at $95,000 (below market). The way RP is disclosed is very important. Since the list price is $95,000 the remarks section must state "This property is Range Priced. The Seller will consider offers between $95,000 and $105,000 with $105,000 being a full price offer". By doing this yo are exposing the property to buyers who may not have seen it if, for example, their Realtor only searched up to $104,000. It really is a simple technique. More showings, more offers, quicker sale. If priced properly the property will almost always sell in the middle of the range. It's not a gimmick. It is a proven sales technique. I have personally sold hundreds of properties using RP and it has cut my DOM substantially.