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Douglas Trudeau , Assoc. Broker
Prudential Foothills Real Estate
64 N. Harrison Road, Suite 160
Tucson , AZ 85748
Mobile: 520-954-2209
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Are You Crazy, What Do You Mean Range Pricing?

We have all heard about the Drew Carey game show Power of 10. Contestants must pick a range on the scale for their answer. With each question the range decreases. Similar concept of pricing items within a range has been used on The Price Is Right for years.

Pricing a home in a real estate market that has cooled down is tough. How much is too little and how much is too much? With old school fixed pricing it gets harder to determine what is the right price. Miss the mark and your home becomes an Expired Listing waiting to happen. Too low and your lucky to get out of the neighborhood without being tarred and feathered by angry neighbors. A not so new and method that is rapidly gaining popularity is Range Pricing. Home buyers and sellers in the Tucson real estate market ask me all the time, “Why would anyone pay more than the bottom value on Range Pricing?” The truth is, buyers pay more than the bottom number all the time.

What is Range Pricing?

Most home buyers may realistically be able to afford more home. They just don’t want to pay more. Range pricing helps to get them to the door. Range pricing is a means in real estate to get Buyers to look at a home and to let the home sell itself. Buyers who may not give the Sellers home a second thought if it were priced by fixed pricing. There are some key factors in range pricing that are grossly over looked by some REALTORS®.

The home must be in good to pristine condition.
The home should be staged well and presentable.
The range has to be realistic.
The Listing Agent must fully understand the concept and to be able to sell it to buyers and their agent.

First, look at fixed pricing. For simplification the average sale of a home in a specified square footage is say $250,000. The Seller and their Agent know Buyers are going to offer less than the selling price. So the Sellers price the home at $257,500 expecting the Buyers to offer 3% less. The Buyers offer below that amount at $248,000 and the Sellers counter offer at $250,000. Everyone walks away happy in a perfect world because they got what they wanted. Unfortunately we do not live in a perfect world and many cities, like Tucson, are in a Buyers Market.

How does Range Pricing work?

Range pricing increases the number of Buyers looking at a home. If nobody is looking, nobody is buying. Easy enough. So, how do we get those Buyers in the door. Lower the price to a level that presents a good bargain. That is the bottom number. Buyers are now looking at the Sellers home. Wait, the Seller would really like to get more, correct? Yes they would. That is where the top number of the range comes into play. In the example I used $257,500. In this case the range could be $244,900 to $255,000.

For Sellers, the target price should be in the middle of the range. The qualities of the home should increase the value. There are three decisions every Seller must make when an offer comes in.

Reject the offer.
Accept the offer.
Counter the offer.

Theoretically, the first option is eliminated. That is if the Listing Agent did his or her homework, and the Seller is reasonable. Theoretically, offers below the bottom price are an automatic rejection. However, in a Buyers Market this is not always true. I still call my Sellers and let them make that decision.

If the Buyers qualify for a $250,000 or $260,000, but, they only want to see homes under $245,000 the door is now open that would have been closed. The Buyer pool has increased. The Buyers have looked at other $245,000 homes that just don’t compare to the Sellers Range Priced home. They never imagined that they could get a nice home like that for a few thousand dollars more. This is where negotiations come in. The Listing Agent is going to push for the $255,000 or as close as possible. The Buyer’s Agent is going to try and get the lowest possible price. If everyone did their homework and the home is in great shape, the negotiations have begun.

Where mistakes occur.

I have seen both sides make mistakes. Neither wanting to bend and both sides with biased opinions of the market and prices. Areas where I have seen both sides make mistakes are:

Sellers are too rigid on their price.
Buyers offering low and asking for too much in return.
Sellers setting the scale too high and waiting to long to get the price to a reasonable range.

How does Range Pricing help both sides?

Both Buyer and Seller know that parameters.
Buyer knows that the seller most likely won’t accept anything below the bottom number.
Seller doesn’t have to worry about lowering the price.
Seller can insist on automatic rejection of offers below the bottom number.
Both sides can walk away as winners, know that each got what they wanted or a little more.

Some samples of homes I have sold using range pricing, each of which sold in less than 45 days.

Range $112,000 to $122,000. Comped at $117,000, sold for $126,000.
Range $380,000 to $409,000. Comped at $387,000, sold for $389,000.
Range $179,000 to $189,000. Comped at $190,000, sold for $189,000.
Range $162,000 to $169,000, Comped at $167,000, sold for $165,000.

So, the next time you see a Range Priced home you will have a better understanding and will be ready to negotiate a good deal for both sides.

This entry was posted on Saturday, August 25th, 2007 at 11:28 am and is filed under Tucson Real Estate. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

Thanks for the comment on my blog. I read that post, not fully understanding it all but learning something anyway. Always good to learn stuff.

August 25th, 2007 // Michael
Doug, nice post. As you mentioned, one of the most important parts of using range pricing is adequately preparing the seller for what types of offers may (actually, WILL) come in. There is nothing more frustrating than coming in at the low end of a range-priced home and the seller not willing to deal.

August 28th, 2007 // Michael Krotchie
Great to see more creative ways to market homes; Certainly from your post, I can see that range pricing has nothing to do with firesales or dumping inventory, but rather a technique to draw more offers than wannabes.

Rebecca D. Levinson- http://www.connect2agent.com

August 28th, 2007 // Rebecca Levinson
looking at range priced homes that have sold, here’s what I found, http://thetucsonfoothills.typepad.com/thetucsonfoothills/2008/03/range-priced-ho.html

April 23rd, 2008 // John Schneider

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