Market Range Pricing--So Misunderstood, So Effectively Good

Carly Simon's You're So Vain is about somebody, but she won't say who.  Thanks to Al Gore's internet, I now know the guy, who we don't know, didn't walk into the party and "scarf apricots", and there were no "clowns" but "clouds" in Carly's coffee. With a little better understanding of the words, the song makes sense.

So, is this blog about songs or real estate?A little of both I guess. Instead of singing the blues in a market where competition is lagging, it appears Realtors are picking up one of the most misunderstood marketing tools and getting results. A quick search of the Realtors Association of South Central Wisconsin, MLS shows 3053 single family home sales in Dane County of properties listed since January 1, 2010. Of those sales, 354 are noted to have been marketed as Range Priced. A simple marketing idea of inviting people to come and look even if they had capped their search below the seller's contracted list price. I expect the trend of range priced properties to go up as the housing economy goes forward.

When I first heard about Market Range Pricing it was 1996 or so, and the concept had hit California via Australia. The San diego real estate community had picked up on Market Range Pricing and found it to be effective in a down market. Real estate is always valued, (appraisals, assessments) on comparison price evaluations. When the housing market is not fast and furious, people making buying decisions take time to do comparison price evaluations too. However, the price setting is traditionally done the way a commodity is priced---by a fixed price. Probably all fine and good but the inflexibility of a fixed price in a highly flexible environment may result in some buyers being intimidated away and some seller's missing out on acceptable prices and extraordinary terms from highly qualified buyers.

The Intent of Market Range Pricing is to invite the person who is qualified to visit your house even if they have capped their search to a price below your asking price.  We know people are being more conservative and for example, while the bank may have qualified you for a purchase of $300,000, you may have capped your search at $250,000, and maybe $275,000. If I have a client who has a house verified worth $300,000 and we are not getting activity because there are few buyers in our price point in our neighborhood, I will suggest a range price strategey of $250,000 to $300,000. By entering the property in the MLS at $250,000+ the house is being found by the persons who limit their search at $250,000 or $275,000. I know this house will compare favorably to those priced significantly less. A clear explanation of our intent helps the buyer, and their Realtor,  know this is not a bait and switch strategy, but an invitation to visit and compare. I provide 2 or 3 comparable sales to support our listed price of $300,000.

We expect buyers are going to do their homework and know what a home's value is to them. Not for everyone, but for many people, when given a choice to spend more than they planned, instead of less than they should, to get more of what will make for a better home for them, the choice to move up is an easy one. There are few things more expensive than owning the wrong home at any price. Owning the right home at a fair price is always going to be the wise decision.

Why should I make an offer above the low end of the range? That's a question I often hear and the answer is simple. Range pricing is designed to bring more people to the house. More people improve our chances of having mulitple offers. You don't know what someone else might do and there is no guarantee that you will get a second chance to make your best offer. The owner is inviting you to compare and make a decision on what the house is worth to you. If you offer $250,000 on a house with evidence to support a $300,000 appraisal, do you want the owner to consider your offer to be your best? Unless you have some compelling reason to not offer your best offer, a low offer with weak terms, might leave you on the outside looking in at what could have been a great home.

I think range pricing is misunderstood here because like anything that hits the midwest from the left coast, we are compelled to add our own flavor to the product. Range pricing came here when our market was in fast-forward. Remember, this is a tool designed for a down market, so when we picked it up, every broker put their twist on the model. What we called range price marketing didn't look much like the authentic tool; instead of being as simple as a cross cut saw, it was more like a hammer, screw driver, wrench, and pudding set in one. One common misperception is range pricing is used when value is unknown. That's probably been a past use. When the market was hot and I thought a house was worth $240,000 and the owner hoped for $250,000 +, we could range price at $240,000 to $260,000 and maybe get $255,000. The appraisers appraised and everyone was happy.

Buyers and Sellers have a win - win opportunity with range pricing. Some of the best terms in today's economy are not price first. Sure price is important, but so is closing date. An offer subjet to sale of real estate is a big uncertainty, but an offer from a pre-approved buyer with nothing to sell and flexibilty to close is highly preferred. I can't say enough about a pre-approval letter from a local lender. Given the choice of a buyer with a letter from a lender in the community or a commitment letter from an internet broker the seller is likely to choose the local lender buyer for peace of mind.

Limitations exist. The search systems in our MLS and real estate web sites require one price, and at first look a consumer will see a price of say "$275,000". The explanation of Range Pricing is typically found in the body of the description, but it is possible for a person to feel mislead when they see one price, get enthused, and then find out the house is actually priced at $300,000, but the range price marketing shows $275,000 to $300,000.  Explanations help.
Range pricing is a tool who's time has come.