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When A Seller Says “Full Price Isn’t Enough!” --Value Range Marketing
by: Scott Williams
What happens in a fast real estate market like Santa Barbara has experienced for the past six month? Sellers place their properties on the market at prices that seem ridiculously high. Still, a full price offer comes in. Even as they accept the offer, a thought is drumming its way into the seller’s mind, “We should have asked for more!” Stories abound of back up offers $10-30,000 more than the offer already accepted by the seller. What can home sellers do to protect themselves without turning off buyers through heavy handed tactics?
Perhaps the seller didn’t set the listing price high enough. More than just the wrong price, sales often happen too quickly. After only a few showings, two or more buyers begin competing to buy the property. There was so little time to plan strategy, and the agents representing the buyer were bent upon completing the negotiation as quickly as possible. They couldn’t blame the buyers or their agent, because they didn’t want to compete against a phalanx of buyers waiting in the wings to write another offer. Still the nagging feeling wouldn’t leave the seller that if they had a little more time and a better way to encourage bidding, without upsetting the buyers, that there could be a better way to get the best price possible for the home.
The crux of the problem is that many sellers are setting the price of their property at prices that several buyers are willing to pay. Then the seller doesn’t get as much as they could, plus the buyers are upset as the price is bid above the listing price. Both parties think they are losing! The tenseness this creates translates to win/lose feeling in both buyers and sellers. Even as the negotiations come to a conclusion the deal is often starting off on an unstable footing.
In the old paradigm of real estate agents would just urge sellers to raise their price. That does work, although rising prices upset the buyers, There is an alternative way that may be better for both buyers and sellers. A revolutionary marketing idea which originated years ago in Australia has arrived recently in Santa Barbara to help home sellers from selling too quickly for too little money and to assure buyers that they are bargaining for the best price possible. Prudential California Realty pioneered this marketing concept in San Diego and Colorado three years ago. It is called Prudential Value Range Marketing. It has since spread all over America and has proven very successful.
Can the Australians teach business to the Americans? In America most of us are used to the cliché that Australia is just like America was 20 years ago. In the real estate business that is not necessarily so. One of the most interesting marketing ideas of the current real estate boom has been imported from Australia. The idea is that instead of setting a single listing price for a home, the home is marketed with a range of value within which a seller is willing to sell. Simple enough, but it challenges one of the well established traditions of real estate.
How does this new idea work? The common approach is so established that most people don’t give it a thought, because the seller simply sets an asking price, say $469,000, and that single price becomes their listing price. Value Range Marketing (VRM) suggests that the listing price should be: “Seller will entertain offers between $429,000 and $488,876.”
(VRM) is rethinking this basic idea of pricing. What does setting a range of value instead of a single price do for the seller. It shifts the responsibility to the buyer to set the first firm price. With the single price approach sellers are setting the listing prices and finding out immediately that they priced their property too low. Sellers needs to either raise their asking prices or they need to specify a range in which they will respond to offers with the high end of the range being high enough to protect them in case the value is bid up.
Once a seller sets a price they still want to find out if their home is valued at even a higher price by the buyers. Using a range has distinct advantages over simple setting a higher listing price.
For the seller setting a range of value helps to protect them if the price is going to be bid up. What advantages does this have for the buyer? Buyers dislike having to raise their bids above the listing price especially if they must compete through several rounds of negotiations with other potential buyers. Buyers see the lower price in the range and welcome the opportunity to start the bidding well below what they think the home is worth. It holds out the possibility of a lower price, while giving more back and forth in the bargaining process. A few more rounds of going back and forth can give the buyer more time to feel good about the purchase.
From a negotiators point of view the current system of single price listings is to the buyer’s advantage and to the seller’s disadvantage, because the seller sets the first price. Since this is usually the highest the seller will expect to get, most negotiating techniques are devoted to how to get the seller down. VRM evens out the negotiating playing field.
Thinking in ranges isn’t really foreign to the buying and selling process. Every party in a negotiation thinks in ranges already. Buyers tell their agent, “We want a house between $450,000 and $500,000.” Agents tell sellers and buyers, “The comparable sales tell us that the house is worth between the $440,000’s and the $470,000’s.” Sellers think in ranges. They say “Based upon what our agent told us, our home is probably worth between $450,000 and $475,000.”
When VRM was first test marketed 3 years ago in San Diego many people didn’t understand what it was about. Bernard Merrick, a seller whose agent suggested using it said about the buyers, “most of the prospective buyers didn’t know what it was all about so they got it explained to them.” Buyers are attracted by the advertising, because they notice the figure at the low end of the range. Merrick said that, “the person who bought my home paid more than he actually wanted to pay because he liked it so much. The value range worked in this case. It brought somebody in who would not have come if the property would have been offered at a certain asking price. He came in because the lower price in the value range seemed affordable or fair to him, and he actually spent more that he wanted and we actually got, I think, a good price.”
With VRM a range is established with a low and high figure. Negotiations start from there. Australians are more accustomed to bargaining than Americans. Still in the United States and Canada it is a fact that real estate is purchased through offers and counter offers, arm’s length bargaining, usually aided by real estate agents. Bargaining is expected in housing purchases.
When Peggy Friedlund, another San Diego home seller had value range marketing mentioned to her by her agent her reaction was enthusiastic. She said, “ I thought it was great from the minute I heard of it, but I had my two sisters there also and they had to go along with this, and they were more skeptical. But it gave us a range, something to go by and we said ‘No harm in trying.’ This is what some people have found really helpful, and it certainly worked well.”
Publishing a range rather than a single price has an intimidating effect on some people. Buyers are used to the seller setting the price. With a value range a buyer doesn’t get to react to the seller’s position when they first hear the price. With a single price listing the buyers can determine in their own minds if they think that the price is too high, too low or just about right. Still a range can make a buyer feel slightly adrift, with no gut reaction for the kind of seller that they might be dealing with.
Arthur Johnson purchased his home in La Jolla through Prudential Value Range Marketing. Johnson said, “ You’re a little taken aback at first, but it’s always easier to work your way up than it is down. The home that we purchased happened to be a $110,000 spread between the opening price point and the top of the range that the seller said they would take. It’s no different than doing any other real estate deal because you are going to rely on your Realtor. You’re going to rely on the comps around you for like homes, for square footage, amenities and everything. And secondly, you’re going to rely on the bank. If the bank thinks that the value is there , too, you’re not going to overpay for the property. I think what it does, it gives you time to work your way into the deal and find out about the people, what their circumstances are, what they really will take and then, you know, also let your emotions come into being and see if this is what your really want.”
The people who are the least enthused by Range Marketing are real estate agents. Not every local company has a value range program. At the time of this writing Prudential California Realty is the only company offering it locally. Change is rarely invited, “if it isn’t broke, why fix it,” think many Realtors. Several agents I spoke with think VRM is a gimmick without much substance, but they were quick to admit that they didn’t know much about it. Local agents seem pretty secure about the role they play in real estate deals. They add value to each sale through the knowledge they have about comparable sales, the help and advice they give to their clients and through being specialists in the negotiation process. VRM just puts more emphasis on negotiations, something Realtors are already good at. Local Realtors seemed open minded enough to take a wait and see attitude to find out if local sellers and buyers are willing to adopt it. The Santa Barbara Multiple Listing Service isn’t going to be in stumbling block to the new idea. The local Association of Realtors is converting to a new computer program that can accommodate the special needs of VRM listings.
As a new concept Value Range Marketing is being greeted with enthusiasm by some and skepticism by others. With the Santa Barbara real estate market undergoing enormous price appreciation (between 1-2% per month!) it has become common for a home seller to receive a full price offer and to still leave money on the table. Value Range Marketing offers an alternative to sellers who don’t simply want to raise their prices. They want to take into account the buyers need to negotiate. VRM doesn’t take away the expectations that both buyers and seller have that there is going to be a bargaining session before the house is purchased. It seems to create anxiety in some real estate agents, because pricing homes with a value range is different than agents are used to. Home buyers see the potential to get bargains and home sellers see the potential for buyers to pay more. Value Range Marketing turns out after all to be a simple concept. It dictates that the buyer make the first move rather than the seller since the buyer is the first to set a firm price. Because buyers can see this they tend to offer a bit lower than they might of in order to get the seller to commit to a firm price. From there both sides negotiate to see what the other will finally take. That is not too much different from what goes on in the majority of home sales today.
Scott Williams works with Prudential California Realtors. He has specialized in selling local residences for the past twenty one years. He is now marketing some of the first VRM properties in Santa Barbara.
Scott Williams has been involved in the real estate industry since 1977. By 1981 he rocketed to become the number one Santa Barbara agent in an organization with more than 200 agents. He has achieved the annual number one status in his office 14 times. Prior to entering real estate Scott graduated from UCSB. He has two children and mentors in the “Fighting Back” program.
He is a Certified Residential Specialist (CRS), a Graduate of the Realtor’s Institute (GRI), and teaches real estate courses for Santa Barbara Community College. Mr. Williams can be contacted at http://www.scottwilliams.com
This article was posted on February 14, 2005
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