Pricing Strategies: Then and Now

The spring market is in full bloom (even with the snow still lingering!), but a lack of inventory continues to suppress the number of transactions. In other words, at most price points and locations, there are more buyers than there are homes for them to buy.

There are signs that the market will follow the pattern we’ve seen the past three years: the spring frenzy cools down a bit as we move into summer. But don’t expect prices to fall. The upward pressure on prices may moderate in the second half of the year, but the trend will still be up, although not as steeply.

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The low inventory market that has defined the past few years has driven the widespread adoption of completely new pricing techniques and listing strategies. Using the “old” pricing methods crafted for a higher inventory, more balanced market could be a costly mistake today. Let’s take a detailed look at the “then and now” of pricing homes for sale.

Then: List price is the intended sales price
Now: List price is just the opening bid

In today’s market, the list price and intended sales price are distinctly separate concepts. They’re still related, but in a completely different way than they were in yesterday’s market. In past markets with more inventory, the list price was intended to be as close to market value as possible. Today, list price can be largely decoupled from market value. List price is simply the price at which the bidding opens. The market value will ultimately be set by buyers.

In fact, an effective strategy for sellers who want to maximize their sales price in today’s market is to go to market with a list price that is somewhat lower than max market value. The more clearly a listing is priced at or slightly below market, the better. List low to sell high is the new mantra.

Of course, that is counterintuitive in the paradigm where list price is the intended closing price, but in today’s market reality, this strategy attracts the maximum number of buyers and offers. In markets with perennially low inventory like the Bay Area, nobody blinks at a home listed at $800,000 that everyone knows will ultimately sell for $1.1 million. That’s commonplace in all price ranges, from 300K to 3 million.

Then: Negotiate down from list price
Now: Negotiate up from list price

In past markets, generating an offer at or close to list price was a desired outcome of a sound pricing strategy. After a few rounds of back and forth negotiations through counteroffers, buyer and seller would agree on a closing price somewhere between list price and the buyer’s initial offer. That worked well for yesterday’s market.

In today’s market, the desired outcome of an effective pricing strategy is simple: generate offers from at least two different buyers, or more. Receiving multiple offers is where the magic happens for sellers. With competing buyers, negotiations move up from list price, not down. In effect, the market is setting the price. Even professionals like myself who are well-versed in current market conditions can be surprised by a new high watermark established by an attractive listing.

Lastly, price isn’t the only consideration for sellers. Terms can be equally as important. A free lease back for 3 months while the sellers find a new home, no problem. How about six? When buyers compete, you win…if you’re a seller.

Which takes us to an important side note. If you’re reading this and you’re an active or prospective buyer, you may be depressed at this point. The sellers seem to hold all the cards. That’s not always true when you get down to individual listings, but aside from that, it’s critical as a buyer to know the dynamics of the new market. That way, you’re better prepared to compete and achieve the overall objective- becoming a homeowner.

It is also important to point out that the pricing strategies outlined for today’s market are not simply theoretical exercises that live only in a newsletter. They are being put to work in the field by 8zers and delivering outstanding results. A few listings recently sold by 8z agents are great examples: A ranch listed for $439,000 closed for $510,000 after receiving 33 offers. A 2-story listed for $1,500,000 received two offers above list and will close at $1,650,000. A condo listed at $255,000 sold for $275,000, choosing the best offer out of nine. These are just a small sample, but year-to-date, 8z listings have sold on average for 1.5% over list price, which translates into thousands more dollars for our clients.

Sometimes focusing on the numbers, the dollars and the cents, we lose sight of what lies behind these figures, what dreams and aspirations they enable. A well-executed pricing strategy can turn into the trip of a lifetime, a college education, or the pure contentment of financial security. Let me know if I can help.

 

A Refreshing Look at the Question “What is my House Worth?”

Homes are hitting the market at a rapid pace. Let’s take a look at some of the stats for our area to get a better idea of what is going on.

In Jefferson County for April 2017, the average sales price* was:

  • $403,000 for Single Family Homes (up 7.2% from 1 year ago)
  • $245,000 for Condos/Townhomes (up 13.2% from 1 year ago).

 

In Douglas County for April 2017, the average sales price* was:

  • $455,000 for Single Family Homes (up 6.8% from 1 year ago)
  • $295,000 for Condos/Townhomes (up 9.3% from 1 year ago).

 

In Arapahoe County for April 2017, the average sales price* was:

  • $365,000 for Single Family Homes (up 9% from 1 year ago)
  • $220,000 for Condos/Townhomes (up 12.8% from 1 year ago).

 

With low months of inventory, this keeps us solidly in a seller’s market for now until more homeowners decide to list their homes.

I have access to detailed stats across Colorado and can help you find out the worth of your property any time. I can also help you determine what your home is worth even if it’s in a different area. As always, I am here for you. If it’s time for you to buy or sell, let’s talk.

*Median sales price based on a six-month moving average

 

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