Pricing Strategies – Part I

Sellers, pricing a home in a recovering housing market is vitally important!  Unfortunately, you can ask 5 different Realtors, and they will all give you different answers.  Are any of them wrong?  Perhaps!  It depends on whose point of view you are talking about, what type of market you are in, who the competition is, and what type of product you are offering.

From a buyer’s standpoint, the price on a home should be seen as a ballpark number, accuracy TBD (to be determined) by our own careful analysis.  How did they get that number? What was going through their heads?  Are they motivated? Are they following the comparables or are they pricing high or low?  The answer is that you will probably never know the truth, and really you shouldn’t care because YOU plan to come to your own conclusions.  You will study the history of the sales in the area, understand the dynamics of the current market, and look carefully at the competing homes for sale.

However, Sellers, don’t think you can slap any old number on your house, because the vast majority of buyers are NOT highly analytical, nor are their agents.  They are emotional, competitive, nervous, etc.  For that reason, pricing, and the response it creates, is crucial.

Whether you are a buyer or a seller (or both!) here are two key things to consider:

1) Be realistic about the house and it’s shortcomings. This is especially difficult when you are the seller and it is your primary residence.  We tend to have inflated views of our properties, and no one wants to be a Debbie Downer and tell us otherwise.  Is your floor plan unusual or choppy (attached sun rooms are almost always a negative)? What are the pros and cons of your location (and of your competitors’ locations?) How close are you to traffic/power lines/stop signs/bus routes? How are your schools, and how are similar homes in the nearby (and slightly better) school districts priced?

2) Know the risks of pricing high. We are tempted to “test the market” and price a little high because we want to leave room for negotiation, or we don’t trust our Realtor to put our interests above his or her own, or we think that we’ll never know how much money we can get for our home if we don’t try for more.  All are valid concerns.  Here are the risks: In a high-end market homes are like Chanel, Gucci, Tiffany’s, Louis Vuitton.  They are “blue chip” as Carol Rodoni (a local and highly respected real estate analyst) says, and “blue chip homes don’t go on SALE.  Kmart homes do.”  If you have a luxury property and you have to discount your home because you have tested the market, there is a high likelihood that you will end up eroding your potential sales price by a good 10%.  So, it is better to price realistically – you will walk away with more money at the end.  In addition, pricing a home high that is in a middle market (ie. Sunnyvale, Almaden, Santa Clara, Willow Glen – which are currently stabilizing) can have detrimental effects on the surrounding home values if you end up having to discount the property later.  Buyers will smell blood in the water and there will be no chance of you getting what the home is really worth.

When is it ok to price a little high?  In an escalating market, or in a market where multiple offers are occuring frequently, or in a market where you have a uniquely desireable property (be very careful here – see number 1).

Stay tuned for Part IIon this complicated topic!