Is a $499 iPad a bargain compared to one that costs $500? Not exactly. But retailers have long priced products just below a round number because, psychologically, $499 feels more like a deal than $500, even if the difference is only $1.
In real estate, the “99″ strategy is nearly always employed. For instance, if a seller prices their home at $499K instead of $500K, the $1K they lose will cover some of the buyer’s closing costs, but in the buyer’s mind, they are paying $500K. In most cases, though, knocking off $1K to bring the price below a rounded figure doesn’t make that much difference to a buyer or seller.
Nonetheless, there’s a fair amount of psychology — and strategy — that goes into determining a home’s asking price.
If you’re a seller, you and your real estate agent should identify (and agree on) the approximate value of the property. Let’s say you determine your home is worth around $500K, based on comparables of similar properties sold in your neighborhood and other market considerations. The next step is to understand the price range for the list price — in this case, somewhere between $480K and $520K, depending on market conditions, competing properties, time of year or inventory. The price range typically goes a bit higher with more expensive properties; a home worth about $1 million might have a range of $950K to $1.05 million.
Once you know your home’s value and have a price range in mind, it’s time nail down the final “list” price.
Here are five pricing strategies for sellers:
1. Appeal to the “herd mentality”
Given the high stakes of real estate, a buyer doesn’t want to be the only one interested in a house. By pricing your property on the lower end of the value range, you could stimulate interest among more than one buyer and create a herd mentality. Also, if you’re under the gun to sell quickly, this would be a good option.
2. Price it to be found in real estate searches
Most buyers tell their agent they want a three-bedroom home in a certain neighborhood under $500K (or some other dollar amount). Their real estate agent may then set up an automated buyer search in their local database for properties under $500K. But if a home is listed at $510K, that buyer will miss it. So, if your list price is higher out of the gates, you may miss a segment of buyers.
While this scenario happens frequently, many savvy agents will set up search parameters for their buyers to include properties listed a little bit more above their price ceiling. Knowing how flexible home prices can be, buyers should be made aware of properties that could be a good match for them, even if those homes are above — but within reasonable range of — what they want to pay. Often times the buyer can offer under the list price, or the property will get reduced.
3. Don’t get ‘creative’ with your asking price.
Many clients want to price their home to catch someones attention. For example an asking price of $477,777, or $606,060.60.
Such an oddly specific figure calls attention to itself for no good reason, like a house painted purple. Buyers will often wonder why the seller chose that figure. From there, they get curious about who the seller is, and so on. In my experience, it’s best to keep the seller far in the background, if not entirely invisible. That’s why we have sellers remove all their personal stuff (such as photos, diplomas, and such) from their homes and decorate in neutral colors. The goal is to showcase the property, not the seller, and to appeal to as wide an audience as possible. Getting quirky with your asking price counteracts this tried-and-true strategy.
4. Work out a pricing contingency plan before you put your home on the market
Sometimes, sellers have high expectations about their property’s appeal and they want to ask top dollar for it, even if their agent doesn’t believe they’ll get it. Or perhaps another agent they talked to planted a high price tag in their mind. Whatever the reason, as a listing agent, I’ll agree to try and sell the home at the higher price. But before the “For Sale” sign goes up, I always try to work out a contingency plan with the seller, in case the property doesn’t go for the desired price. By having everything on the table from the get-go, we’ll have a plan B should the first plan fail. This saves time and helps set the appropriate expectations in the seller’s mind, so there are no unpleasant surprises down the road.
5. Pricing is an ongoing discussion
Ultimately, listen carefully to your agent’s pricing strategy. It’s their job to know what works and doesn’t. And as with any strategy, be prepared to have an ongoing discussion about pricing with your real estate agent. Pricing a home isn’t a “set-and-forget” procedure. A lot of factors can come into play when selling or buying a home, and not all of them can be anticipated. If you can be flexible and react quickly to changing market conditions or new information, you’re more likely to get the best price with the least aggravation.