The Number One Myth of Pricing Property

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Again, this is so true.

I will be reducing one of my properties on Monday and I asked the seller for his absolute bottom line.

This is the first time I will post a listing in the MLS as PRICE FIRM. Let’s see how that goes.

This market, more so than most, continues to be a very price sensitive market.  One of my favorite agents, Dan Edwards, of Northstone Real Estate said it best recently when he said “it is no longer adequate to the priced competitively, your price must be compelling.”

The most common objection I get from sellers when working to have a compelling price is a concern over receiving low offers.  They frequently have a desire to leave “Padding” in the price so as to have room for negotiation.  Over the years I have found this to be the number one myth in pricing property.   I have found that it is rarely a good idea to leave”Padding” in the price.  The problem in this market, as in most markets, is not low offers, it is no offers.  By pricing the property as competitively as we can and striving for a compelling price we get offers that otherwise we would not have.  The reason we experience this is that it is crucial to price the subject property against the correct competition.  I’ll keep the numbers simple here so we can do easy math.  Let’s say that our subject property is worth $400,000 but the seller decides to list the property for $450,000 so as to have a “buffer” built into the price.  The problem is that agents will show the subject property against the wrong competition.  Let’s say for example, I take a buyer out and show them five properties that are offered at $450,000, let’s also assume that all the properties except the subject property are worth $450,000.  The seller’s thinking is that the buyer will simply make an offer, but the fact is that if I asked the buyer which house they like best the last house they will choose is the subject property.  The reason is that it does not compare favorably against the homes we are showing it against.  When I ask them why they don’t just make an offer on the subject property the answer is quite simple.  “That’s ridiculous, that was the worst house you showed us for the money.”  The key here is to show the subject property against the correct competition.  By leaving “padding” in the price you are instantly positioning yourself for failure.  Once sellers realize this they are more likely to price the property properly; they are more likely to give you a compelling price so that you can show the home against the best competition showing the buyer the value of the property instead of placing it in the class that it will not compete effectively against.

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