Understanding pricing strategy…
To drive competition and maximise property value.
Setting the right price for your property in Melville is crucial for attracting potential buyers and achieving the highest possible value. While it may be tempting to set an exorbitant price and wait for the perfect buyer to appear, this approach rarely works. Instead, we explore the concept of strategic pricing, leveraging a 10% pricing allowance and generating healthy competition to optimise your selling prospects.
Contrary to popular belief, dictating any price you desire to the market is an unrealistic approach. No matter how much you love your home or how unique you believe it to be, pricing it arbitrarily high is not an effective strategy. To maximise your chances of negotiating offers at a higher price, it is important to strategically price your property. This approach fosters healthy competition among potential buyers, driving up the value of your home.
Going overboard with your pricing can have adverse effects on your selling prospects. When the price is set too high, you inadvertently shrink the pool of potential buyers. With limited competition, your real estate agent will face challenges when attempting to negotiate a higher price. Additionally, an overpriced property sitting on the market for extended periods becomes increasingly difficult to sell. With each passing week, the listing loses its appeal and buyers may view it as an opportunity for negotiation at a lower price.
To secure the best price for your home, it is essential to position it for sale when interest and awareness are at their peak. Typically, this prime selling window falls within the first 1-4 weeks of listing your property. By capitalising on the initial surge of buyer activity, you increase the likelihood of achieving a favourable price. Avoiding a prolonged listing duration prevents the perception of staleness, which could lead buyers to leverage a lower price.
Pricing nuances can be complex and specific to each property and market conditions, however, one universal truth remains constant: competition drives price, and price drives competition. Staying agile with your pricing strategy allows you to adapt to prevailing market conditions and maximise your property’s value.
Understanding the intricacies of pricing is essential for optimising your selling prospects and achieving the best possible value for your property. By strategically pricing your home, you create an environment that fosters healthy competition among buyers, increasing the chances of negotiating offers at a higher price. Avoid the pitfalls of overshooting and prolonged listings, and aim to sell during the peak interest period. Remember, your price is the driving force behind competition, and competition ultimately determines the final selling price.
The psychology behind pricing strategies…
Set Your Price Low
If you find yourself selling in a buyer’s market, in which the supply of homes on the market outnumbers the population of buyers, you might consider pricing your home low to set yourself apart from the crowd.
While you might hesitate to deliberately under-price your home, keep in mind that your home won’t necessarily sell for the list price. In fact, if this strategy is successful, you’d ideally attract multiple buyers. And what happens when you have multiple buyers vying for the same property? That’s right: a bidding war. Counterintuitively, pricing your home low could net you a haul that’s well above your initial asking price, so you can’t overshoot this – keep it within the 10% rule.
Strategies with no advertised price
We still see this a lot in the marketplace. Agent’s using Contact Agent, or similar in replacement of a price. It also used a lot when agents have an overpriced listing. The view behind it is that the agent might get more enquiry with buyers having to call for pricing which can result in the agent getting the chance to talk the buyer around, whereas the agent might not have otherwise had that chance if the buyer saw a price that was thought to be too high for them, or too high for the property.
The problem with this in today’s world, is buyers are more educated and some will work on the assumption that anything without a price guide is overpriced. There also are many buyers that will simply not enquire or view a property after seeing it advertised with “Contact Agent” in replacement of price. This is a fact, so it comes with great risk of turning a large percentage of buyers away. Methods using some form of price guidance, or a combination of price and text, are the better approach.
There are some variances in effectiveness depending on price brackets, for example it is less of an issue when selling in the higher end markets but given the market’s perception of what Contact Agent means, it would still be prudent to come up with a different phrase such as Price Guide Available or anything else really. There are also other options such as Expressions of Interest, which is also a type of sales method, but you can still use that wording in a typical private treaty sales method in replacement of Contact Agent.
Broad and starting price guides
This is becoming very common in our local markets. Using a broad range guide on price allows us to capture the attention of buyers at different price points. In turn, this can lead to greater competition which is essential to driving a higher price. Say a buyer has a budget of $980,000 and you have a price guide of “Offers starting high $900k’s”, this buyer will most likely consider themselves to have a chance of purchasing the property, so they come along to the viewings. Another buyer with a budget of $1.02m who likes the property also sees it fall within their budget, so they too come along to the viewings. The agent is aiming for a price above $1m. This broadens your buyer pool, and the more buyers at viewings, the greater the perceived competition.
Let’s say both the $980k buyer and $1.02m buyer both put offers in at $980k – without that buyer at $980k, we have less to leverage the $1.02m buyer up to their max price, and negotiations can become a little more challenging. But with the $980k buyer on the table, negotiations are then simpler to get the $1.02m buyer to a price above $1m as there is bona fide competition on the table. However, if we priced as “Offers from $1m”, we most likely lose the $980k buyer and would then have less competition to work with.
Pricing for search criteria
No matter what pricing strategy you use, whether it includes advertising a number, text or a combination or both, there still needs to be a price entered which will affect the backend search criteria for your listing across all of the online portals. Getting this right is important, as a large number of buyers search using the search filters and a fair chunk of the exposure your listing gets, comes from online portals sending out emails to buyers with new listings and – they will send these emails out based on a buyer’s search patterns and/or their saved search criteria.
So, let’s assume we are chasing a price of $950,000. If we set our search price at $920,000 with a price guide of say “From low $900k’s” we are going to miss out on the buyers that set their searches with a top of range set at $900,000. The thing is, we might need these buyers to generate the interest and competition required to drive price up to $950,000. If we set the search price at $900,000, we would then be getting all the buyers that set $900k as their low end and all the buyer that set their search up with 900k as their top end. It is about knowing how buyers search for property and how the online portals are set up in this regard. As a general rule, setting your search price a little below your target price will always generate more buyer enquiry.
Some interesting results from psychology studies into real estate pricing…
To nine, or not to nine?
The TV for $1,599 or the car for $13,990. The obsession with nines is called ‘charm pricing’ and is based on the idea that $9.99 sounds far less than $10, while also suggesting that the price has been carefully considered.
Property, being a premium purchase, is a slightly different beast. It can first be argued that the contradictory strategy — ‘prestige pricing’, where you instead round the number — is more applicable, as a higher value hints at a more premium, value-rich purchase.
There’s also the more functional consideration of how people search for property. Most buyers will filter their search results by price, so if you set your asking price at $499,999, you’ll be missed by anyone who sets their minimum to $500,000. As such, it’s generally ill-advised to dress your price to the nines.
The perks of being precise
While nines should be avoided in real estate pricing, there are some advantages of picking a precise number. A 2007 study of 27,000 real estate transactions found that buyers pay more money when prices are specific. The reason, suggested the paper, was that buyers were “primed with small magnitudes”. This means that high levels of precision are usually only seen in small numbers, so the brain is tricked into thinking that, despite its length and complexity, $462,898.12 is more wallet-friendly than $450,000.
Precision brings another factor into play. A 2008 study gave participants a suggested ‘anchor price’ for a plasma TV, then asked them to estimate its actual price. The results were intriguing:
Anchor Price Estimated Price
When the suggested price is precise (i.e $4,998 is very specific vs a rounded number of $5,000), the estimated price is higher. In real estate terms, this translates to a buyer perceiving less negotiation wiggle room: they assume that because the asking price is specific, it is also firm.
The value of four and seven
The points above don’t mean that you need to come up with an asking price that goes down to the second decimal place. In fact, giving off the impression that you’ve carefully scrutinised price can be as easy as adding a four or a seven.
These numbers sit in real estate purgatory: it’s rare to see them used outside of the first or second digit of a price. But values like $474,000 or $477,000 give the impression of being carefully considered, while still being easy to digest.
When cents make sense
Most agents choose the $XXX,XXX format, which is a perfectly effective method. Removing the comma can make us perceive the price as smaller, although for six or seven figure sums this can hinder readability. Replacing the final three digits with a ‘K’ can do the same, but as we discussed earlier, a home is a premium purchase that should be positioned as such — you don’t necessarily want to reduce the perceived value.
However, this quirk of psychology does have its advantages. Just as making the format shorter can give the impression that the value is smaller, lengthening the format can make the value look larger.
This tactic is useful when you’re lowering the price of a property. For example, announcing that you’re taking $50,000.00 off the asking price is more impactful than doing the same with $50K, even though the dollar amount being discounted is exactly the same.
Remove the dollar sign
The pain of paying is a real and measurable phenomenon which can be triggered very easily. So easily, in fact, that the mere presence of a currency symbol, be it $, £ or €, can be enough to clamp a potential customer’s wallet shut.
In real estate marketing, the dollar sign can play an important role: often posters, flyers and online ads have a host of numbers, so it’s important to indicate which is the price. However, sometimes the price is so obvious that it doesn’t actually need to be prefixed with a ‘$’. In these situations, taking it out might make potential buyers more open to giving you a call.
At the end of the day, real estate pricing is less about the actual value that you apply to a property, and more about understanding how a potential buyer will perceive that value. Each of the tips above might only nudge the arrow slightly in the client or agent’s direction, but when you’re talking about a six or seven-figure purchase, even the smallest deviation can result in significant changes to your bottom line.