Hard-to-sell homes: Try range pricing
If your house has been languishing on the market with few showings and no buyer in sight, here's a strategy you might not have considered.
It's called value-range marketing or range pricing.
Instead of offering your house at a single price, provide buyers with a price range. Start with the price you've been asking and make the lower price about 10% to 12% less. Promise potential buyers that you'll seriously consider any bid between those prices and almost certainly counter offer on any bid that is rejected.
Realtors using the tactic say it encourages buyers to come up a little in their offers, and sellers to come down a bit in what they'll accept, with the result being a sold house.
Indeed, if you suddenly get a bunch of buyers and bids towards the lower end of your range then you'll know you were asking too much. Prices peaked in many cities last summer and have been stagnant or falling the past year.
The strategy was born in Australia, according to Peter Toner, a San Diego real estate agent whose firm has been using range pricing for 11 years. At that time, the market Down Under was "appalling," he says, with sellers desperate to get as many eyes as possible looking at their properties. The range was thought to cast a wider net as sellers went fishing for scarce buyers.
Range pricing came to the United States in the mid-90s, during a similar slump in the California market. Now it's spreading eastward as sales slow in many cities.
Some find it confusing. But agents who use the tactic say it is a way to get buyers and sellers talking, which traditional pricing doesn't always do.
"It's designed to be win-win," says Mark Monaghan, whose agency, Sine & Monaghan GMAC in Grosse Pointe Farms, Mich., started using range pricing earlier this year. "Buyers are attracted by the low number, although you're shooting for something in the middle."
Monaghan's market, in southeast Michigan, is very soft at the moment, with many unsold homes and pervasive worry over the health of the local auto industry. With so much stagnation, Monaghan says, range pricing is starting to move houses that have been sporting "For Sale" signs for months.
He offers a typical anecdote: A house near his office came on the market at $569,000 and attracted little interest. After a time, the sellers dropped their price to $499,000, but got no offers there, either. Monaghan's office took the listing and posted a range price of $450,000 to $499,876. (All the office's listings end in 876, "VRM" -- value-range marketing -- on the telephone keypad.)
The low-end price attracted buyers who had a stated top end of $450,000, and offered that much. The sellers countered, and they eventually settled on $465,000. The range, Monaghan says, did exactly what it was designed to do. It encouraged the buyers to come up and the sellers to come down, and got the house sold.
Not all Realtors are as enthusiastic as Monaghan. Pat Vredevoogd isn't fond of range pricing partly because her city's Multiple Listing Service -- the collective database of all homes for sale at any given time -- requires range-priced homes to be posted with the top price. Consequently, searching on MLS for properties within a price range is going to leave out lots of range-priced homes that will likely sell for well under their high figure.
Vredevoogd works out of Grand Rapids, Mich., and said that some local agencies tried the tactic for a time, but it didn't catch on.
"It confuses people," she says. "Why are you including that lower figure if you're not going to accept it?" Add the MLS problem and it's unlikely to win over many converts.
That's why the key to making the technique work is education -- of agents, buyers and sellers, said Toner.
"There was an extreme amount of resistance," when it was first tried in Southern California, he says. And even though the market came back with a vengeance, range pricing came with it, spreading to more than half the listings in metro San Diego -- 56%, to be precise.
"If a listing agent does his job, a house should sell about halfway through the range," Toner says. Other standard practices, analyzing the prices of comparable homes, for instance shouldn't be affected by range pricing. "It's a sales tool," he said. Nothing more.
Toner estimates that 90% of his office's listings offer a price range.
"I've had homes where I've taken it out of a range (when they didn't sell) and set a fixed price, then put it back into a lower range," he says.
Why move from range to fixed and back to range?
"When the next lower range seems too low," he says. Sellers can be squeamish about that lower number. "But when it doesn't move," even within a range, "that's the market telling them something."