Pricing Strategy

Pricing Strategy

Pricing Strategy

One of the great debates in the business of real estate revolves around pricing strategy. Some agents want listings so bad they’ll price a listing wherever the seller wishes to see the price. This strategy is especially popular in a roaring market, much like the one we’ve experienced since the onset of the equity market recovery that followed the onset of Covid. If I don’t know where the market is, I might as well list a property at $X, because if there are 40 potential buyers and 39 of them think my price is ridiculous, that matters very little. If one buyer thinks my insanity matches their expectations, I win. I hate this approach to market pricing, but I can’t pretend it doesn’t work once in a while.

Buyers should be aware that their goal is to never, ever, be the one person who doesn’t sense where the market should be. But many buyers seek to understand the market on their own, or through inexperienced or otherwise inaccurate guidance, and because of this they often find themselves as the outlier. Real estate pricing in this haphazard manner is engineered to find the outlier, and if you’re not paying close enough attention to the nuance in the market you’re likely to be that person. Don’t be.

If a property is launched using this pricing strategy, the seller is hoping for one thing: a fast sale. A fast sale means that one buyer bit, and the seller wins. Absent a fast sale, the seller is now in a very difficult position. Does she hang on to her made-up list price forever? Does she adjust the pricing lower through a big move, implemented perhaps 14-30 days after market launch? Or does she lower the price systematically in small increments over a reasonably long period of time, assuming that one of the price points she runs into will produce a buyer? All three methods are present in our lakefront market, with certain participants preferring certain moves.

I see the high list price followed quickly by a large price reduction to be a clear indicator that the seller missed the market. There’s a difference between listing high and listing too high, and that seller, through a quick move, is admitting that the initial price was sucker pricing. How else can you interpret this sort of price adjustment? The seller who adjusts incrementally over time is akin to a spin fisherman trying to entice a bass to strike. A little jig here and a little jig there. Teasing. Mocking. Tempting. This is the seller who makes these tiny adjustments, hoping one will hit a buyer just right and spur that offer.

I take issue with exaggerated pricing primarily because it confuses the market. If a nice house is selling for $6M, does it make any sense for a similar vacant parcel to be the same price? Of course it doesn’t. But what it does is encourage sellers of similar $6M houses to suggest their pricing should be $8M, because how could their house only be worth the price of that vacant lot? The lot isn’t worth that and neither is their house, but that exaggerated pricing hanging over the market has skewed perception to such a degree that it’s impacting future list prices. This is why I despise the pricing strategy of List High And Pray.

If you’re a seller, don’t list your property like this. It’s ridiculous and it takes an already nuanced market and makes a mess of things. If you’re a buyer, how can you tell if a property makes sense or not? How can you be sure that any specific property is priced well, and represents repeatable value? It all comes down to market guidance. You need proper guidance on a list side and proper guidance on the buy side. As fate would have it, I’m here to provide both.

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