The Art of Setting the Perfect List Price
November 21, 2020
If you are planning to sell your home, you need to get ready. It is a long process that can tire you out. You don’t want to lose out on getting a great deal because you didn’t pay attention. One of the most important decisions a seller has to make is to SET THE LISTING PRICE.
The listing price is the price at which you are ready to sell your home. Set a low price, and you can miss out on getting more money on the deal. Put a high price will end up needing price cuts or substantial discounts and result in losses. You will have to pay taxes, mortgages, and utilities during the time the house sits on the market. All those factors need to be considered before you zero in on an amount.
How do we ensure your list price is perfect? There is no simple solution. It involves a series and steps to reach the conclusive answer. Real estate markets are constantly changing and evolving. You need to be tuned into the pulse to arrive at a price that is appropriate for your home worth and time invested. In our previous blogs, we have given you tips and ideas to understand your home value. Do go through those to get a precise foundation of this subject. Today we will go into specifics to be able to list a price and sell your home.
These strategies will influence your sale and home values, so please pay attention and do research about them before you decide to sell your home.
Estimating Home Prices
Professionals and agents often use various methods to estimate home prices. The backward-looking comparables method is one of them. It is efficient when finding an approximate range for home prices. Its only drawback is that a lack of good, comparable homes can sometimes be complicated if the market is appreciating or depreciating.
In a backward-looking comparable method, you will usually study the area and neighborhood to understand pricing history. This is available on the internet or via Government councils, which study pricing trends and valuations.
We mentioned AVMs (Automated Valuation Models) in our earlier posts. These models that you find on the internet can suggest a price for you. AVMs may not be approximate because they could have insufficient data or vast error ranges.
The safest way, one we have recommended previously, too, is combining the selling prices from various AVMs to arrive at a figure. Or you could compare AVMs with backward-looking models and settle at the selling price that is closer to both.
Types of Pricing Strategies
Setting a listing price is like the first move in chess. It’s your opening gambit. The way you determine your listing price will decide how your negotiations proceed. That’s why you must pick a pricing strategy that is an absolute winner.
There are three general strategies employed by professionals and sellers. The first is the round number strategy. It is precisely what it sounds like. The seller will pick a round number as the listing price. Usually, they round it off to the nearest $5000 or the middle of their calculated range. This is the easiest way to set a listing price. But a smart buyer can sense the hesitation on the buyer’s part. A buyer who rounds it off isn’t set at a particular price. The buyer will know that he/she is more comfortable to work with and willing to negotiate. They will offer a lower price for the home. Sellers may consider and accept that offer as they have possibly rounded the listing price for its ease.
The second one is the just below strategy. Sellers will try psychological pricing or retail tricks to lure the buyer. Buyers are often tricked by retailers with products priced at $9.99 or $1.99. These amounts will seem closer to 9 and 1, despite reality. So, a seller will price his home at $149,000. It will feel like a great deal for a buyer, and he will consider it $140,000.
Buyers will also negotiate in the just below strategy. They think sellers have more flexibility and room to maneuver in. Buyers try to submit a lower offer, say $145,000 for the $149,000, and when the seller comes with a higher counter-offer of $147,000, they accept it. This situation is a win-win for buyers but not for the seller unless they have raised the just below price after predicting this exact result.
The third and final strategy is the precise pricing strategy. While all price ranges have been set after long and tedious consideration, the precise price hits the closest. This number can be higher or lower than the actual selling price, depending on the seller’s calculations. Precisely priced homes are well-developed prices, according to buyers. There is research, computation, and planning that goes into arriving at that figure. A precisely priced home indicates a seller who isn’t willing to negotiate and may prove to be difficult when handling other issues. Agents recommend sellers to give some leeway, which a precisely priced home or seller will not offer.
All three strategies have their pros and cons. What will work for you? Which one should you choose? You need to define your selling strategy first. Are you interested in negotiating? How much are you willing to compromise? Do you think the price you have set is in sync with the market trends?
Arriving at the Strategy
We can’t tell you what strategy to pick. This isn’t a blanket solution. All of this will depend on variable factors. Research has shown us that the listing price strategy has a significant effect on negotiations. The approach you pick will set the tone for future dealings and your buyer’s mood. While this article is aimed at sellers and helping them establish a list price, we also wish that both the parties should have a fair and reasonable deal.
You would think the precise pricing strategy is the best for the seller. It puts him/her in the driving seat and has the highest chances of achieving maximum selling price and profit. But if the seller is too bent on that particular price, it can dissuade the buyer and lead to a poor deal.
Studies have proved that the just below strategy leads to better results. It also offers the highest discounts to buyers, but because the seller often overprices, that difference makes up for the discount. The just below strategy makes the buyer think the seller is smart but not stubborn and interested in creating a fair deal. The round number strategy fares poorly because it shows the buyer unprepared and lazy to make a call.
Perceiving the Strategy
We know that listing prices set the tone for all negotiations and discussion. A poorly negotiated listing price will sour the mood of the buyer or seller and cause friction. Every seller has a target price in mind, and every buyer has their maximum amount in the head. Sometimes both may achieve their goals, sometimes only one, and in a completely messy deal, no one will be satisfied with their results.
Sellers will try to reach their price by either lowballing or rounding up and hiding it from the buyer. All deals will have stages of offers and counter-offers. If a seller accepts your first offer, you should do more research before committing to the home.
Buyers will give in a lot of thought AFTER they hear the listing price. It is all a matter of perception. Humans think in round numbers when looking at larger amounts. Mental shortcuts and mechanisms affect the way a buyer may consider your offer.
Buyers are also moving online, so sellers fine-tuned their prices to reflect in filters and various ranges. This will give you an edge if your buyer is just perusing online. Your home priced at $199,500 could miss out if a buyer puts in a filter of $200,000 and above. The smart move will be to keep updated on market trends and modify your prices to reach maximum audiences.
To conclude, there is no wrong answer to the strategy you should pick. Setting a list price is an art that varies over time and in different periods. It also factors in the current economic scenario, global markets, and local trends. There is so much information available to buyers that a seller’s job is getting more difficult. The pricing strategy will depend on your sales capabilities, your negotiation power, and your research.
You can select a round number strategy if you want to let the buyer start with his ideal offer. Then you could pick up where you think is appropriate and provide a counter-offer. If you are ready to take a risk and can sell it, you should select the precise strategy. This gives you the advantage, and you can convince the buyer that your price is worth it. For a safer approach, buyers can try on the just below strategy. Add or increase to the listing price by ending it with 900, which is a real estate trick. If you wish to sell your home at $249,000, quote $249,900. This gives you breathing room to fall back on if the buyer quotes a lower price.
Initial offers are just the first step in the negotiation process. It is your strategy that will determine the way the buyer considers you and your offer. You don’t want to appear too easy or too hardened. It should give the impression of a seller who knows his/her value and is willing to land up with a fair and good deal for all parties involved.