Comparing Home Pricing Strategies


Comparing Home Pricing Strategies
By Scott Rogers • March 5, 2021
Above I have included an overly complicated illustration of an overly simplified comparison of two pricing strategies. A few key points for understanding the graphic above... It's the same house, being priced with two different strategies. Since it's the same house, it has the same market value in each pricing scenario - see the purple line above. I think it's quite possible that both of these strategies end up getting the seller to the same eventual sales price - see the blue line above. As general and vague as these pricing strategies might be, they are specific to the market dynamics we are seeing now, here. So... the two strategies... STRATEGY #1 In this scenario, the seller decides to price their home just barely above market value. If most would agree that a house is worth $315K, then maybe that is pricing it at $319K. Pricing a home so close to (but just above) what you believe to be its market value is likely to (in this market, now) generate a LOT of showings. A fairly priced house in a market with extraordinarily low inventory levels results in a lot of early showing activity. Houses listed for sale with prices very close to their market value also typically see quite a few offers, which leads to the most important differentiation between these two pricing strategies... With so many offers, you are bound to have a buyer or buyers who are willing to go above the asking price, maybe with an escalation clause, maybe with an escalation clause that goes up to a silly/high number, maybe without a home inspection contingency, maybe without an appraisal contingency, maybe cash, etc. You see where I'm going here. The more offers you have, the more likely you are to have an offer (amongst the many) with terms that will be very favorable to you. STRATEGY #2 In this scenario, the seller decides to price the house a good bit above the assumed market value, you know, because the market is strong! If most would agree that a house is worth $315K, then maybe that is pricing it at $329 or $335K. Even if most buyers (and buyer agents) suspect the price is a bit too high, you are likely still to have a good number of showings, though definitely not as many as if you had priced the home closer to its market value. Of the smaller group of buyers who looked at the home, you are likely to have a smaller number who make an offer. You'll have fewer offers because the price is not quite as realistic, and because some buyers will assume you won't come down much on your price since you just listed your home, which leads to that key difference again... Having priced your home a good bit above its market value, you are less likely to have full price offers, less likely to have escalation clauses, less likely to have buyers waive an inspection contingency or appraisal, etc. You will likely still have very good terms as far as price, but not great terms. Again -- this is an oversimplification of how to best price your home -- and every house and segment of the market is different -- but at some point you will need to decide what type of a strategy you will take in pricing your home, as to what results you are hoping to see. Receive Updates by Email
Have any questions? Contact Scott Rogers at 540-578-0102 or scott@funkhousergroup.com
Based on information from the Harrisonburg-Rockingham Association of REALTORS® or its MLS, for the period Jan 1, 2000 through Dec 17, 2024 (unless otherwise noted).
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