Pricing Strategy: Lead the Market

To contact us Click HERE
by Osman Parvez
Price smart or risk leaving money on the table.  In a rising real estate market,  base your pricing strategy on current market conditions.

This post is part of a continuing series on pricing strategy.      Let's look at my favorite approach.  

Strategy:  Lead the Market

This strategy requires knowing the price trend and having the confidence to set the leading edge.   It takes a high level of current market knowledge, a detailed evaluation of the most recent comparable sales, and a willingness to relentlessly track the current competition.     And that's in addition to solid preparation and savvy marketing.

Smart and On The Edge

For the seller, this strategy is the best combination of maximizing sale price with minimal risk.   By stretching slightly above the market, say 2% to 4%, you're showing that you're aware of market conditions and the trend.  You also aren't so far above the market that you'll alienate buyers.

Of course, how far above the competition you price depends on many factors.   Some of these include;  price range, location, property type, deferred maintenance, desirable upgrades, and most importantly - market conditions.    Setting the price point should not be taken lightly.

Just like with your other financial and investment matters, there is a relationship between risk and return.   Don't let anyone tell you differently.

What's Up, Betty Crocker?

smell the emotional attachment

What reaction do you want potential buyers to experience when they walk into your home?  

You want them to feel it matches their needs, as required, but also that it has many of their wants.    In short, you want them to have an emotional reaction to the property and be able to envision themselves living in it.   That's one of the reasons crafty sellers will bake cookies when they know they've got a showing scheduled for later that day.   The even craftier ones will make them gluten fee and leave them out with a friendly note on the counter (I'm not recommending that, don't sue me).

In an ideal scenario,  the listing is new on market, staged, and the right house in many ways.   The buyers came to see it because it was in their general price range, but now they're coveting THIS house.  They're getting serious.   When they take a closer look at the price, they may even realize it's leading the market,  but they're right to be afraid of another buyer scooping it away.   In a market with rising prices, buyers will offer full asking or close to it in order to cinch the deal.    In some cases, I've seen buyers offer MORE than asking because they want the house so much, even in the absence of a competitive bid.

When buyers have an emotional reaction and want a particular house, they'll rationalize a higher price without further encouragement.   It's the same way that car buyers will talk themselves into a luxury car with all the bells and whistles, when they came in to look at the economy model.    They'll start to talk about the difference in cost on the basis of differences in monthly payments, or even borrowing money from family to fund the down payment.   They'll come to believe they're worth it or that they deserve it.    I've seen couples good cop and bad cop each other, guilty looks exchanged, and on and on.

The fact is that buyers regularly go outside of their supposed price range.  Part of the reason is emotional attachment.   The other reason is because value increases at a faster rate than price, up to a point.

Don't Buy the Shiny Suit

Here's the rub.   It's an old trick for a Realtor who wants your listing to knowingly shoot too high on price because they don't bear the risk of blowing the honeymoon period.   You do.

Costing the seller money seems to be the last concern of the salesy listing agent, when it should be their first.   Conveniently, it's also the tactic that requires the least amount of effort.

When a potential buyer sees a grossly overpriced listing, they'll ignore it.   When pricing later comes back to earth, they wonder what's wrong with it.   This is the opposite experience you want buyers to have when they see your listing.    Assuming you care about maximizing price and minimizing days on market, that is.

The further you shoot above current market value for your home, the greater the risk that you'll take a walk of shame on the price.   Knowing the trend helps alleviate some of the concern.    Being conservative with how far above you aim is critical.    A comprehensive marketing strategy that can quickly adjust when it becomes clear there is a problem is your backup plan.

When I go on a listing appointment,  I don't put the asking price in my listing contract because I'm not competing with other agents on the list price.  I've opted out of that game.  It's a disservice to my clients.   There's a spot on the standard contract for the price, but I leave it as TBD.  

When the seller and I have agreed to the relationship, it's time to go to work.   It may take a few days, but I'll come back to the seller with a detailed analysis and not a solitary price, but a recommended pricing range.    I let my seller decide how much risk they're willing to take.   If they want to move it fast, price it at the low end of the range.  If they want to aim for maximum price and are willing to accept higher risk, let's go for the high end of the range.    If it helps, I'll even take them to see the competition so they can see market conditions from a buyer's perspective.    See Developing a Buyer's Eye for more details.

Looking for a listing agent?    I'd love to show you about how my strategies for selling your property maximize the sale price and minimize days on market.    Call me at 303.746.6896. 
---Like this analysis?    Subscribe to my research.       Would you like to meet me in person?    Attend a Boulder Real Estate Meetup. 

Please note:  My goal is to provide exceptional service to our clients. The ideas and strategies in this blog post are the opinion of the writer at the time of publication. Careful and complete due diligence is strongly advised before buying or selling real estate or other investments. Consult with your professional advisers before making financial decisions. This article is not intended as legal, tax, or investment advice. Silver Fern Homes will not be held liable for investment choices derived from this article.

pics:   Scubadive67