The four most common strategies for pricing a home
Much of the advice online for home sellers about pricing their home is accurate, but really basic. Pricing your home right matters, but there are a number of different pricing strategies that can get your home sold- and each has benefits and risks. In the end, it comes down, to your priorities and your individual circumstances. In general, the more aggressive, high-price strategies work if you really don’t need to sell your home. Low pricing, competitive bid strategies are great if you trust your agent or if you need to sell in a defined time-frame. Traditional pricing strategies are somewhere in the middle.
Here’s a brief overview of the four main strategies for pricing your home. If you’d like more in-depth research and our guide to pricing your home, Contact us.
Strategy #1: Price for a competitive bidding war.
This home pricing strategy works well for people that need to sell in a defined timeframe or just simply want to get it over with. And interestingly enough, this strategy, in some markets, is actually your best bet for getting the highest value at the end of the day. You should never consider this strategy if your agent isn’t good at negotiation, because this is all about negotiation.
With this approach, your home would be priced as much as five percent below its true expected sale value. Then your agent will spend the next few days creating as much urgency as possible, driving buyers into the home, and playing each buyer back and forth against each other. In many cases, your home could end up with three or more offers in just a few days. In rare cases (and depending on the market) you can have over a dozen offers, all above asking price, in less than a 48 hours.
Once the offers come in, the agent then will go back to each of them, sometimes once, sometimes multiple times, and get them to compete. It sounds something like…“Look. We’ve got a lot of interest here, and a number of other folks want this home. My first offer is $10k above you and a larger deposit. What are you really willing to do to get this home?” It works. Finally, the agent will say “submit your highest and best” offer, and set a time for submission. Once in, the sellers will evaluate all their choices and pick the buyer that works best for them, which isn't necessarily the one that came in with the highest price. Sometimes other factors, like flexibility, contingencies, and personality will play in.
Strategy #2: Price for a “fair deal”.
This home pricing strategy is the most common. Home owners, working with their agents, will review comparable properties, both recently listed homes and recent sales, and the overall trends in the market. Then, they work together to arrive at a price which is similar to recent sales, after adjusting for any differences between the property they are listing, and other recently sold homes.
A big part of the go-to-market home pricing strategy is evaluating the overall market. Are homes going up in value? Staying the same? Going down in value? Is there a lot of competition? In other words, how many homes are available and similar to the home that you are is trying to sell?
For example, in a moderately rising home value market, your home would be listed for sale just above others similar to it. The home would likely be sold for a bit less than asking price. The “normal” difference between asking price and listing price is about 5%. In other words, if you list your home at a price of $500,000, your expected sale price would be approximately $475,000. But this varies considerably by market- it can range quite a bit based on market conditions.
Strategy #3: Price aggressively and have a contingency plan.
Another common strategy for pricing a home is all about “testing the market”. In this approach, home owners and their agent review the market statistics and comparable properties in the market. Then they offer the home for sale at a price that is higher than the market would suggest they could get- but not by a lot. In other words, if similar homes sold are selling in the $320,000 to $340,000 range, and homes are selling for about 3% less than asking price, an aggressive approach would be to try and list the home for $359,000 or $365,000, for example.
The homeowner and the agent, however, should agree in advance about what happens if they can’t sell at the first listed price. If the home doesn’t sell within a certain timeframe- 30 days for example, then the price will be lowered to value that is more in line with what is happening in the market.
A typically pattern is listing for sale at a high price, waiting a month, dropping by $10,000, waiting, dropping by another $10,000, then finally selling for a value that is close to the market price expected.
Depending on the market, this strategy usually ends up working one of two ways:
- The homeowners get lucky and find a buyer that truly “loves the home” and is willing to offer and pay a bit more than might be expected.
- The homeowners can’t find a buyer to bite.
Then they drop the price once, twice, or even more times, in an effort to find a buyer. This makes the owners seem desperate (home prices and their pricing history are widely available in the market) so offers that come in tend to be more aggressive and at a lower price. A typical pattern is listing for sale at a high price, waiting a month, dropping by $10,000, waiting, dropping by another $10,000, then finally selling for a value that is close to the market price expected, after significant negotiation.
This strategy is time-consuming and can be risky. Buyers can see desperation and will take advantage of it if they think they can. However, if the market statistics for your home are not clear or your home is truly different than many others on the market, this can be a good strategy to test the market demand for your home.
Strategy #4: See if you can get a crazy high value and retire.
The least-popular price strategy, at least according to any real estate agent that has ever existed… but non-the-less popular some clients, this approach should only be used by someone who doesn’t need to sell. It only makes sense if you don’t really need (or even maybe want) to sell your home, because the odds are pretty good you won’t.
Generally speaking this “throw it out there and see if anyone bites” strategy is most typically employed by three types of sellers:
- People that don’t want to sell.
Yes, people list homes all the time that actually don't really want to move. Maybe they are bored? More often, one owner wants to sell and the other doesn't. So the couple decides to compromise and list their home at a very high price and see if they can “leave it to fate”. This also can happen with a person that has difficulty making decisions. They prefer to let chance make the decision for them, and ultimately, this lack of direction and decision-making can go on for a very, very long time. Based on experience, we can say this strategy doesn't usually work out well, for anyone involved.
- Clueless For-Sale-By-Owners
The world will always have a percentage of people that are clueless. These people can also be identified by other signs, like having too many lawn ornaments or leaving their couch in plastic. They really, really don’t know what their home is actually worth and as a result, they put it out there at a price point that is very unrealistic. This person might be able to figure out eventually, if they are lucky enough to have an agent that can explain it to them well, and they trust the agent. Frequently however, the person will “misdiagnose” the issue, and blame any number of other things, such as: the marketing, the décor, the neighborhood, the agent, the furniture, the interior, the exterior, and the particular phase of the moon.
- Desperate People
The saddest group here are those that deep down know that the price they are asking doesn’t make sense, but they have to sell at a very high value… maybe they owe money that needs to be repaid and there is no other way to get funds. Maybe they took out a home equity line and now have to re-pay it. Maybe they need to fund a retirement home in Boca. Whatever the reason, these sellers are the most difficult to work with, precisely because what is now their problem will become the problem of whatever buyer tries to buy their home.
Obviously, you probably don't want to be any of these folks. We recommend you stay away from this particular pricing strategy.
Want to learn more? Contact us and get a customized strategy guide to selling your home.