4. Pricing Strategy

DECISION #3: WHAT PRICING STRATEGY SHOULD I USE?

The pricing strategy is the method used for listing and marketing price. In that respect, overpricing early on will result in the wrong buyers looking at your property because:

  • The price at which you promote the property will determine which buyers consider the property when they are searching online.
  • Most of your potential buyers are going to be looking at your property in the first two weeks it is on the market.

The following options might be considered for pricing strategy:

Advertise a Specific Price

This is where a single price is advertised as the sale price for the property, eg $575,000. The advantage is that buyers know exactly what price the owner has set and can decide quickly whether they are interested.

The risks of a specific price are:

  • If the price is way above sale price of comparable properties you will attract the wrong buyers to your open homes and inspections. They will be expecting a better house for the money and be disappointed. Meantime you will miss lots of potential buyers looking at comparable properties that are priced lower.
  • An overpriced property will be obvious to buyers from photos and specifications in the listing. Many buyers will have been researching the market for months and know the prices of homes selling in their area. They will ignore overpriced properties, assuming it will be too difficult to negotiate the seller down. Or you’ll get low offers, and be disappointed.
  • If you reduce the price later, the credibility of the sale will be compromised and buyers will consider you are fair game for low offers.
  • Pricing too low is also a risk, but doesn’t happen much (surprise, surprise). Well priced properties sell fast, but low prices make buyers wonder if there is something wrong with the property (termites, ghosts, bad karma).

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Buyers like to have a win, so they normally expect to get their property for less than the listed price. They will quibble about the state of the carpet, the paintwork, torn flyscreens, tatty curtains and laminex benchtops. Some will want to deduct thousands for a new kitchen, a paint job or new blinds. So it is important that the price you advertise at can be justified in terms of the current condition of the property.

PRICE RULE #2: The price at which the property is advertised should reflect the condition it is presented in.

 

Advertise a Price Range

This is where the property is seeking offers in a price range, eg $550,000 – $575,000. This option suggests that the seller has a clear idea about the upper limit they expect. Agents sometimes use a price range where an owner wants a higher price than the agent considers is realistic. Showing the higher price satisfies the owner, whereas the agent knows the sale price will be mostly likely be closer to the bottom price. This is not the best solution to pricing.

If the upper limit is beyond a buyer’s budget, they may be put off making an offer if they believe the owner will not consider it. On the other hand many buyers will expect to get the property at the bottom of the range. It is against the law to publish a price that the owner will not reasonably consider.

  • Regardless of price guidance, buyers can, of course, still make an offer below the minimum price listed.

 

Advertise Offers Over…

Properties will sometimes be listed seeking offers over a specific price: “Price guide over $X” or “Offers over $X”. This strategy allows owners to indicate a minimum price at which they would consider offers. This is a better method than using a price range, in my view, because it doesn’t constrain offers with any upper limit, and is particularly suited to a rising market.

  • Buyers are still free to make offers below the minimum price listed.
  • If a seller is not prepared to consider offers just over the published minimum price, the agent may be considered to be “baiting” buyers by showing a price the owner never intended to consider, which is against the law.

 

Advertise Offers Under…

This method of pricing purports to show buyers the maximum price, perhaps with the intention of reassuring them that the seller won’t expect a price higher than the one published. Perhaps it gives comfort to the buyers, but the agent is supposed to be working for the seller, and in a rising market to set a cap on price to me seems contrary to the seller’s interests.

 

No advertised price – For Sale By Negotiation

Some properties are also sold by private treaty without a price. This is called: “Price By Negotiation”. Many properties are listed for the first week or two without price to gauge market feedback.

While not publishing a guide to price annoys some buyers, it forces buyers to consider properties on their merits. And with buyers these days undertaking considerable research online, this form of advertising is becoming more widely used.

Serious buyers will rarely be put off by no price, and this pricing strategy can gain attention to your property from a wider range of buyers, both when the market is rising or falling.

This pricing strategy is also used for unusual or prestige properties where it is difficult to determine what the market price will be. It is sometimes used when the seller’s desired price is unrealistically high, to obtain market feedback to inform the seller of the market realities.

  • Serious buyers will look at the property on its merits, and contact the agent for price guidance. This will allow the agent to further promote the property, and qualify the buyers.
  • Will potentially attract more buyers to inspect, because those looking at higher priced homes and lower priced homes will consider the features of the property rather than filtering on price.
  • Will potentially achieve a higher price for the sale, because of the focus on the negotiation process to achieve an outcome, rather than constraining negotiations by a price guide.
  • If the property is unpriced early on and then later listed with a price that reflects the market feedback, there will be no detrimental impact (unlike when a specific price tag is lowered because it is excessive).
  • There is the risk that this may annoy some buyers who will skip over these listings.
  • If the property is being auctioned, some States will not permit a price guide to be advertised, to preclude misleading buyers.

 

Online searching and the “Search Price Range”

In order to cut through the clutter when they are hunting for properties to consider on listing sites such as Domain.com.au or Realestate.com.au some buyers use the search filters. The most commonly used filter is the price filter.

So, you ask, how do these potential buyers find my property if it is going to auction or is for sale by negotiation, without a price on it?

The website designers understand that it is important that buyers still find your property when they are filtering on price. To assist buyers in searching, the websites require your agent to specify a “search price range” on their listings. This means that, even if your property is advertised without a price, it will show up in filtered searches for a particular price range.

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Listing websites allow you to filter on price.

The search price range will normally try to allow for normal variation in market expectations by using a broader range of price than specified in the advertisements themselves. For example, say the listing is advertised seeking offers between $550,000 and $575,000. But when buyers do a filter search, the property will potentially appear for any searches between $500,000 to $600,000 or even $650,000.

This overcomes some of the limitations of advertising using a price range. Still, it is impossible to avoid buyers using their own internal filter when they see the property with a certain price.

Consider carefully what pricing strategy you adopt.