Real Estate value range pricing is not that common in Massachusetts thankfully! The term value range pricing can also be known as “variable pricing”, “value range marketing” and “range pricing”.
So what is Real Estate value range pricing exactly? It is when you list a home for sale and rather than going out on the market at a set price you give a range in which the seller will consider an offer.
For example a home could have a value range price of $500,000 – $550,000. Before I get into why value range pricing is deceptive and nothing more than a marketing gimmick let me explain it’s origins. It was originally started here in the United States back in the mid 1990’s by Prudential Real Estate. The idea was borrowed from Australia. It caught on in some areas of the country most notably Southern California, Arizona, and Florida but was never used extensively here in the Massachusetts area.
In other parts of the country the Multiple listing service (MLS) is set up to handle value range pricing as a marketing option. Here in Massachusetts there is no such option. So how and why do Realtors use value range marketing?
When you list a home here in Massachusetts your only option is to select a list price. Using the above example, the Realtors that push this non-sense will list the home at $500,000 in the MLS but in the remarks it will say value range listed between $500,000 and $550,000. In other words the seller may consider offers between $500,000 and $550,000.
The goal is to get more eyes looking at the property that otherwise might not if an absolute price was chosen. Traffic and exposure they say. I say it is a bunch of poppy cock! I can not tell you the amount of times a buyer has called and asked me to show them a few homes where one of them is value range priced and the buyer does not know it. Most buyers don’t read every line of detail in a listing and often times it can be missed.
So what happens when that buyer who is qualified to spend $490,000 thinking they are looking at a $500,000 dollar home finds out the seller will only accept offers between $500,000 and $550,000? You guessed it they are usually pretty pissed off and start to question why a seller would price a home this way. More often than not the seller has been sold a bag of goods by the listing Realtor on why this is a great way to market a home. What good is traffic and exposure if the person looking at the home is not qualified to purchase? It is a waste of everyone’s time.
This kind of pricing strategy is perfect for the Realtor that doesn’t know how to price homes properly! Value range pricing should be re-named “I don’t know what the hell I am doing pricing”.
This works well for the Realtor who used to drop the price on nine out of ten homes they were marketing but has a fallback plan now. Not sure about the comparable sales? Hey lets just value range price it…Brilliant!
All this does is put confusion in the buyers mind. Using the above example again what if the home is worth less than $500,000? The seller could be expecting something in the upper end of the range and the buyer is thinking no way Jose. This kind of pricing strategy just gives sellers false hopes. In a down market how many buyers would ever even consider offering something in the upper end of the range. Not many. What real estate value range pricing really amounts to is ” bait and switch marketing “. In the above article you will see a much more in-depth discussion of exactly how value range pricing works. You will see a discussion that shares both the positives from those that say it has some value to those who don’t. You probably already have gathered I am not a fan at all of this type of pricing gimmick. In fact I have never been a fan of any type of gimmick or borderline shady marketing.
Regardless of any range of price used to market a home a good buyers agent is going to pin point the market value for a buyer. A sellers best bet is to price their home properly and not rely on pricing gimmicks. In fact, I tell people all the time setting the right price is 80% of the marketing. If you come out at the wrong price you can have the most exposure of any home in your town and it is not going to matter.
Sometimes sellers are talked into doing these kind of things by fast talking real estate agents who don’t explain both the pro’s and the con’s. The will use a pitch to get you to price this way when competing with other Realtors. It is much like the real estate agent who will give the seller a pie in the sky price just to get a listing. Don’t fall for it!
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About the author: The above Real Estate information on Real Estate value range pricing was provided by Bill Gassett, a Nationally recognized leader in his field. Bill can be reached via email at firstname.lastname@example.org or by phone at 508-435-5356. Bill has helped people move in and out of many Metrowest towns for the last 28+ Years.
Thinking of selling your home? I have a passion for Real Estate and love to share my marketing expertise!
I service the following towns in Metrowest MA: Hopkinton, Milford, Upton, Southboro, Westboro, Ashland, Holliston, Mendon, Hopedale, Medway, Franklin, Framingham, Grafton, Northbridge, Shrewsbury, Northboro, Bellingham, Uxbridge, and Douglas.
I completely agree with you Bill. It is a ridiculous concept that only disappoints everyone in the transaction, buyer, seller and agents (except maybe the listing agent because they don’t really care, all they are interested in is getting the listing.)
We don’t have that going on here either Bill, although it is an option in the mls fields. To me, it just gives the seller’s position away.
Catherine & Barb – There are so many reasons why value range pricing is just a big gimmick that does nothing to help the seller move their home. It just creates a lot of confusion especially when the MLS does not allow this kind of pricing.
Bill–Thanks for the great post. I wholeheartedly agree with you. I have only seen a few occasions that seem to merit a value range pricing strategy but mostly it just turns buyers off especially in our current market. It truly does seem like a bait and switch or a way to stroke the seller’s ego. The excellent agent will lay out the facts regarding the how and why of pricing and be less concerned about being liked. We are hired to sell not to be a new friend…
Kathy – I agree with you completely and know that you have to deal with this kind of pricing far more often up in the Franklin/Wrentham area. I know there are a few agents that regularly use this pricing strategy. It is a really poor way of doing business especially when Realtors and their buyer clients hate it.
Bill – Thanks for the great article. Here in Oklahoma we don’t see that at all. Such a disservice to the seller. I guess in this case “Incompetence is the Mother of Invention”.
Ray you are lucky that you do not have value range pricing in your area. All it does is confuse the buying public and set false expectations for the seller.
I believe you are missing the real points and only seeing it from one perspective and that is the Realtors. Unfortunately with the advent of the internet it is easy for the consumer to cut out the middleman being the Realtor and pass the savings on to the buyer. From my personal experience it is the sale and not the seller that the Realtor is interested in. That said there are different tools that an internet savvy freelancer can use and value pricing being one. If used correctly and communicated correctly no one is deceived or upset. If there are only bids at the low end the seller must obviously settle for that price which is a sale. Yet if the property is of value at the middle to high end that will also be exposed. No wonder real estate agents are crying the blues with outdated sales models and commissions rather than change with the times. I have used this pricing with great success on Craigslist and am flexible to each unique product. If a house is in a neighborhood with comparable sales the those sales should set the market price. But if the house is set apart there is nothing wrong with using a range as long as the range is not extreme. You must remember the average consumer can use products like for sale by owner or list by owner on MLS for only a few hundred dollars. Most if not all buyers will search independently on the internet and drive into certain areas and neighborhoods as well. The game has certainly changed!
Kenneth – Did you just skim the article on value range pricing or actually read the whole thing? If you read the article you would understand that I am not just seeing value range pricing from my perspective but the consumers as well. I don’t know too many home buyers that want to plan to visit a home they think is on the market for $500,000 only to find out later that it is actually closer to $550,000 because the seller has different expectations.
One of the problems with value range pricing is that some MLS boards are not set up to handle this type of pricing. The Greater Boston MLS being one of them. The only way for a consumer to know if the home is value range priced when looking at various distribution channels through MLS is to read every line of line of detail on the listing. Many consumers do not do this and will just skim the most important things such as size, bed and bath count, lot size, etc. When looking at the price it will show the low end of the range and not the high end in the Boston MLS system. That is DECEPTIVE to a buyer.
There is a huge difference with marketing a product on Craigslist compared to marketing a home. You are talking apples and oranges! You may see an advantage of doing what you are with pricing on Craiglist for whatever it is you are selling. Homes that use this tactic are not selling quicker or for more money in my area. Wouldn’t that be a good measuring stick of it’s effectiveness. If this type of pricing scheme was so wonderful everyone would be doing it.
The last statement you made says it all – BUYERS WILL SEARCH INDEPENDENTLY. When we were the gate keepers of information before the advent of the internet we would suggest homes for buyers to look at. Today more often than not the buyer will tell me what homes they want to see because they have the access through the internet. When buyers don’t see the value range price they add a home to their list that they might otherwise not be looking at due to the price. Trust me Kenneth this pisses buyers off when they are informed.
I do remember Prudential trying it briefly here in Cleveland in the 90’s but it didn’t last long. It was deemed ineffective in our market and I’ve never seen it since. And to Kenneth above, consumers do try to “cut out the middleman” but it’s usually so they can pocket more money for themselves, not to pass on savings. In my market, I have statistically proven that consumers who deal directly with an owner pay more for a home. Bill, thanks as always for the thought-provoking post.
Bill, I fully agree and it didn’t last long in our area when Prudential came out with it.
Kenneth – if all consumers went to the Internet to become so educated then why aren’t FSBO’s being sold left and right in today’s market? Why are buyers still contacting agents to purchase homes and why do they ask us point blank what to offer if they’re so empowered as you state. Why are most FSBO’s giving up and listing with brokers if buyers are so savvy as to get rid of the “middle man”? Must just be my area in the Midwest, because I’m not seeing anything you’ve written taking place here.
I also disagree that the dislike for value pricing is only taken into real estate agent’s perspectives. In today’s buyer’s market, we’re seeing buyers offer under market value, no matter how much Internet studying they did (obviously none). Doesn’t matter if their agent tells them their offer won’t fly because there aren’t comps to back-up their low offers. Sometimes takes losing a home or two or three for the buyer to finally understand. If those same buyers saw a value range, no matter how we might try to explain it to them (and why should we have to – why not just price it correctly), human nature is going to tell them to try it at that low price that they are seeing right in front of their eyes.
If it was so acceptable it would have lasted. Everyone would have embraced it, but it didn’t happen in the majority of the U.S.
Judy – no doubt about it! Just priced the home right to begin with. If you price a home properly you don’t need gimmicks to sell it.
Just price it right.. hmm. So you are telling me that you list a house and wait for a buyer to pay that price? You do not list it high and come down off that price? That to me is a gimmick as well. Show me one appraisal that does not include a value range.. hmm. All you have done is explain how the buyers do not like it and that a majority of real estate brokers do not like it. Now that is to be respected but please realize all you are is ‘salesman/woman’. Just price it right. What do you tell the people who you sold a house to for $400,000 and is now appraised at $300,000? Was that just priced right also? Or at least it was priced right enough to generate more fees and commissions. Right.. hmm. Why aren’t FSBO’s being sold left and right? First of all FSBO’s are being sold. But lets be honest how many homeowners do their own plumbing? their own pest control/extermination? build their own cabinets? The fact is the opportunity is available via internet as never before. Personally as a consumer I find Zillow as the best distribution site as far as content information. Realtor.com has really become the inferior product. And one would like to believe that there are still good professionals in every occupation. Anyways I will be listing my house in the next 2 weeks. Since I did a lot of the work myself I am in a break even to small loss situation. To think my product has the best materials ( 2×6 walls, 100% plywood, poplar moldings, custom jointed doors and cabinets, marble inlay bathroom walls, drainage system around the house, radiant barrier insulation, tank-less water heater, metal roof etc ) and installation ( if it was not installed right it was taken out and re-installed at my expense). To think that it will be priced well below a cost appraisal yet will be compared to a track home on a sales comparison I am sorry Bill, Judy and the gang but.. this is America in the 21st Century. This is the American Real Estate Market of 2012. Do you know how many people that you sold houses to that are buried and will never get out. But you still get a commission on the same house you sold for $400,000 which last week sold for $250,000. Just price it right.. right Bill?
Kenneth I am really trying hard to understand the point of your comment but really don’t get it. In regards to your question about someone buying a home for $400,000 that is now worth $300,000 seems to imply that it is the Realtors fault the market changed? I don’t ever remember putting a gun to anyone’s head that bought a home. I surely don’t ever remember a telling a buyer to spend more than $100k more than they were really qualified to spend even though a bank said it was ok. Ken you sound like the type of guy that wants to pass blame to anyone but yourself.
BTW – Zillow is one of the worst sites for delivering accurate information. The site has homes posted for sale when they are already under contract or sold. Don’t even let me start in on their “Zestimates” which are so grossly inaccurate it is pathetic!
I am sorry you are bitter towards Real Estate agents but you are barking up the wrong tree if you think we are the cause of the great American dream!
It was the industry’s fault as a whole and individually each player had his/her role. It started with and still remains a banking/appraisal problem and to a lesser degree contractor/agent problem. The article started as value range pricing so on that topic the range pricing in most opinion is not favored over the ‘list high’ and come down approach. Both gimmicks just that one is more accepted over the other. Why start off with emotional turmoil when with a the sale all parties buyer and seller should feel good about the sale. As far as FSBO’s they never will put the brokers out of business but the internet and sites do offer the consumer an incredible vehicle to sell the house themselves. This only if they are willing to do the homework as well as the work. I would imagine 98% plus do not and would rather have a professional do the work. So the point about price is you are dealing with a cost and replacement value and you are dealing with a comparable sale value. At the end of the day there is a buyer with money and a lender who is willing to lend so much based on the appraisal. The sale of a $400,000 house appraised one year which is selling appraised for $300,.. 2 years later falls directly on the mortgage lenders. Yet the point was real estate agents, mortgage bankers and myself included are not 100% right in the 21st century real estate market. The only real value is ‘what it costs to build’ and since we do not do what is natural and real anymore… it is all about gimmicks. Personally I do not even figure in the zestimates all I am interested in is the price, square footage, lot size, amenities and a nice display of images to see. Even though you did not put a gun to anyone’s head at the end of the day all the agent cares about is the commission whether the house sells for $400,000 or $300,000. No Bill I do not pass the blame around that seems to be more of your profession. All I do is try to see things for the way they really are.
Ken Real Estate value is really determined by one thing: What is a buyer willing to pay for it. This is true whether you are selling homes or anything else for that matter. The point of the article on value range pricing is that it is deceptive to a buyer who thinks they are viewing a home for a certain price when in fact they are not.
In regards to your comment about Realtors only caring about their commission I would completely disagree with you for the most part. Are there some bad eggs? Yes there are. You will find them in every profession. The goal however for most agents is to make sales. That is what we are paid to do.
If you represent the seller you try to get them the best price. If you represent the buyer you try to get them the best price. When I am working with a client the commission is the last thing that ever enters my mind. I work for the goals of the client. The commission is what I end up getting paid for that work. Whether you make a couple hundred extra dollars is immaterial in my mind.
Ken if you are a pro you never worry about where your next check is coming from. This is the problem with most consumers. They will hire any Real Estate agent they happen to meet and never really qualify them. There are some agents that HAVE to make a sale. This is not the type of agent you want as they will put their own pocket book ahead of the consumers. I don’t need to make a sale and therefore can give someone exceptional advice. Whether someone buys a home from me today or six months from now makes no difference to me. With many agents that is not the case. They need that check and because of that sometimes give advice that is really not the best for the consumer.
And I did take your advice as far as Value Range Pricing. I will list the house at ‘my’ break even cost which includes money out of pocket plus the principal paid down. It will be slightly above a comparable market analysis but considerably below what it would cost to build. I am willing to take a $10,000 to $15,000 loss as like you I am not pressed for cash. Instead of making a return on the investment it will be like a piggy bank. All the money I put in the jar is mine. The value was in the experience of building the house. Knowing how trapped others are I have alot to be thankful for. Either they want the house or they do not. Thanks!!!
My husband and I just had a terrible experience with this marketing ploy.
It was totally misrepresented by the realtor. It was presented as an advertisement for an open house in order to pull in more interest. We specifically stated that we were not changing the list price. Imagine our surprise when I look at some websites and see my home shown with a 44,000.00 price reduction. The house is no longer listed, it is off the market now and we are very upset. We are not sure how to choose an agent. We stated up front that honesty was extremely important to us and feel that we were duped. I wish that I had read this article before agreeing to this marketing ploy.
Nancy I am sorry to hear about your situation. Not only is value range pricing misleading to a buyer the fact that your Realtor did not disclose to you what they were doing is completely unethical. It is Realtors like this that give the Real Estate industry as a whole a bad rap.