Bernice Ross
The rules of pricing properties are changing, yet most agents continue to use the same pricing approaches that agents did 50 years ago. Are you making this costly mistake on your listings?
Because my company does a lot of training of new agents across the country, a constant topic of conversation on our group coaching calls is how to price properties correctly. I recently spent some time working with an agent who had landed a prime listing in one of the nation’s hottest downtown historical areas.
The listing was priced at $849,900, was beautifully staged, and had only been on the market for seven days, which is the average market time for the area. Other, more experienced agents had convinced the listing agent that she should ask the sellers for a price reduction, because the property next door had just come on the market for $799,000.
The agent was also concerned that the area might be peaking and that additional interest rate increases could result in declining values.
After reviewing the comparable sales as well as the new predictive analytics tools for pricing listings, I recommended that she increase the list price rather than lowering it. Here’s why:
The row houses in this are predominantly two bedrooms, with one full bath upstairs and a half-bath downstairs. This was the case for the $799,000 listing next door to the subject property. In contrast, this agent’s listing was a three-bedroom with two and a half bathrooms, PLUS parking, a rarity in this area where most residents fight for a space on the street. Clearly, the $50,000 price differential was more than justified.
When I checked the price on Weiss Analytics – an artificial intelligence solution that uses hundreds of factors to price properties, not just MLS and public records – plus the Zillow comps, they were all greater than the current list price. Furthermore, Redfin’s algorithm put the probability of the property selling in the next four days at 70 percent at the current price.
The Weiss Analytics tool also predicted that this property would increase by 3 percent this year. Furthermore, because of the re-gentrification going on in this area, the property was predicted to outperform the overall market area by 5 percent to 8 percent over the next five years.
While all the facts above do matter, there was one even more important reason for increasing the price. It’s a major pricing error that thousands of agents make daily.
A Small But Costly Mistake
To understand the exact nature of this mistake, I searched Austin homes for sale on Realtor.com with no price parameters. The following prices came up for the top 10 new listings: $400,000; $524,999; $1.095 million; $1.775 million; $499,999; $329,900; $574,900; $252,000; $279,900; and $274,900.
Can you spot the $1.00 and the $100 pricing mistakes?
Of all the listings, only the property priced at $400,000 was priced to accommodate how people search in 2017 rather than relying on the 50-year-old approach of pricing the property $1.00 or $100 under the next price point.
The “$1.00 mistakes” are $524,999 and $499,999, and the “$100 mistakes” are $329,900, $574,900, $279,900 and $274,900.
The agent I spoke with had made a $100 pricing error by pricing her listing at $849,900. The reason becomes obvious if you go to Realtor.com on your mobile device and look at the pricing parameters it gives you for a search. Here’s what I pulled up: $120,000; $250,000; $350,000; $450,000; $600,000; $700,000; and $800,000.
Zillow, in contrast, uses a slider, but the numbers that come up are still multiples of $10,000. Granted, some MLS systems allow you to search by specific prices, but a huge proportion of the traffic is searching on Realtor.com and Zillow.
Given how many searches take place on mobile devices, if you price your property at $499,999, that extra one dollar can cost you 50 percent of your potential buyers. The reason is that those people who are searching for homes priced at $500,000 to $550,000 will never see your listing that is priced at $499,999.
After examining all the data on this property, $860,000 seemed to be the best value estimate. The question, however, is do you price at $860,000 or do your drop it to $850,000 to capture those buyers who are looking in the $800,000 to $850,000 range?
The agent was excited to go back to her clients armed with all the data and an explanation why increasing their price by $100 was a smart move. She was especially excited to show her sellers the predictive analytics data that showed the potential for greater appreciation in this neighborhood as compared to several of the other market areas nearby. Best of all, she could let go of what the “experienced” agents thought she “should” do.
To provide your buyers with the maximum amount of exposure, price your listings where they are straddling price points in multiples of $10,000 rather than using the antiquated approach of choosing list prices that end with $900, $95,000, $99,000 or, the worst error of all, the one dollar mistake of $99,999.
Bernice Ross, CEO of RealEstateCoach.com, is a national speaker, trainer and author. She may be reached at Bernice@RealEstateCoach.com.
