What is Value Range Pricing

What is Value Range PricingWhen you begin looking at the listings for homes – whether you are a buyer or a seller – you may come across a type of pricing structure you have never seen before. This pricing strategy is known as value range pricing. Instead of listing a property at a fixed price, you may discover that a seller is listing his or her property using value range pricing – indicating that offers will be entertained between a low number and a high number. This may seem strange, but some real estate agents swear by it.

The term value range pricing can also be called other things including “range pricing”, “variable pricing” and “value range marketing”. Over the years I have had numerous clients ask me “what is value range pricing”?

Whether you use it is up to you, but it is one alternative approach to home sales that may be nothing more than a gimmick. Frankly, I am not a fan of this pricing tactic because of the deception it creates with buyers.

I will however, give you both sides as to why or why your wouldn’t want to use this real estate pricing strategy. There are certainly pro’s and con’s to using value range pricing. If you ask me the con’s far out weigh the pro’s. You can be the judge by taking a look at the re-cap below of what value range pricing does for both buyers and sellers.

Marketing With Value Range Pricing

Most people consider this marketing method to have originated in Australia. It made its way over to the U.S. in 1995 on the West Coast, then to New York the following year. While it never took off nationwide, the use of value range pricing has continued in certain local areas of the country – especially in California. There are real estate agents that consider it a powerful tool in selling and other agents who consider it underhanded. Depending on your situation, though, it could prove useful in selling your home.

Say your home is worth $400,000. If you wanted to use value range pricing, you would possibly list the home as $375,000 to $425,000. Each situation would be slightly different, but many value range priced homes look much like this. With this type of listing you are telling buyers that you would be willing to sell your home for somewhere in this range.

The largest advantage to this type of approach is that it can bring buyers and sellers together that otherwise would never meet. Consider if you had listed the home at $410,000. This means that all the online shoppers only willing to spend $400,000 would never see your home in their search results. This could possibly be true even if you would actually be willing to accept a lower price.

The value range pricing approach gives you more room to negotiate and more opportunities for potential buyers to both see and consider the home. To use this method, though, requires a long hard look at what you are actually willing to accept for your property. Critics that insist this is a bait and switch approach assume that sellers will list a home in a range where they would never actually consider the lowest price.

If this is the case, it is a bit disingenuous. However, for most sellers there are a number of considerations that go into how much they will sell a home for. If all the right criteria are met, there is a lowest price you could part with the property that might be perfect for a potential buyer.

Using Value Range Pricing

Value Range Pricing You can imagine how frustrating it would be as a buyer to see a home listed for a price only to discover that the seller is in no way willing to accept that price. This is why if you are going to use value range pricing, you must take the time to think it through. What becomes very discouraging for buyers is when the price they see displayed from a search on the multiple listing service is at the low end of the range and is not a price the seller would be willing to accept.

For example a home value range priced from $500,000 to $550,000 where the seller is really looking for something over $525,000. The price displayed to a buyer online however is $500,000.  Without reading the fine print a buyer would assume they are looking at a $500,000 home.

It is not a good thing when the buyer finds out that is not actually the case! If value range pricing is not common in your area some buyers and agents are going to have one word come to mind – deception!

Many multiple listing services including the one here in Massachusetts do not allow a method by which a buyer clearly knows there is value range pricing. The only way a buyer knows is by reading the comment field which often times buyers just skim.

Imagine calling your real estate agent to schedule some showings. You head out the door thinking you are looking at homes priced around $500,000 when in reality you are really looking at a home priced between $500,000 to $550,000. So if the seller really expects to sell their home near $550,000 and you only qualify to spend $500,000 guess what just happened?

If you guessed everyone’s time was wasted you are 100% correct. The agent, buyer and seller all wasted time by having a showing to a buyer that wouldn’t be able to purchase the home. This is a pricing tactic that I have seen some real estate agents use in the Franklin Massachusetts area. It clearly is not that effective or more people would be doing it. Franklin is one of many towns I work in. Rarely do you see it anywhere else.

Price Your Home Correctly

With value range pricing it is generally recommended that you start at a range of about 5 percent above and below your home’s estimated value. Just because you are marketing a home using a certain pricing technique doesn’t mean that it allows you to overprice your home. If you overprice a home regardless if you use value range pricing or not, it will not sell! The risks of overpricing a home are numerous.

Over the years I have seen many homes with value range pricing where the actual value of the home did not even fall into the range. The Realtor/seller priced the home too high. A gimmick like value range pricing does not cause people to overpay for homes. If that is what you are thinking then don’t even consider using value range pricing as a marketing tool.

Discuss with your Realtor whether the approach would be right for your property and work with your Realtor to determine the criteria for your pricing. What would make it worth it to sell at the bottom part of your range? What would keep you from doing so? Establish fair rules to go by when the offers start coming in. You are never obligated to accept a price you do not think is fair. Just determine ahead of time what fair actually means. There are a number of ways home owners get their price wrong. Don’t let value range marketing be one of them!

My Thoughts on Value Range Pricing

Realtor Suggesting Value Range Pricing In the long run you are better off just pricing your home in a range that is close to the actual value and forgetting about value range pricing! This would especially be the case in a strong market where stepping outside the norm would not be necessary.

Pricing a home is an art and a skill. It is in fact one of the most difficult jobs a real estate agent has when representing a seller. If you get the price wrong on a home everything else you won’t mean a hill of beans. All the marketing in the world won’t sell an overpriced home!

One of the unfortunate part of the real estate business is lots of Realtors don’t have any pricing skills. Do you know how many homes see their prices dropped every day across the country? A ton! While there are times this happens because the overall market is dropping in value, most of the time it’s because the home was priced WRONG!

The value range pricing strategy is actually perfect for the real estate agent who doesn’t have a clue about setting the right price for a home. In fact value range pricing could be re-named “I don’t know what the hell I am doing pricing”.

Everyone knows the Realtor in town who consistently overprices their listings. You know the one – nine out of every ten listings has a price reduction. Some of these agents just don’t have any pricing skills and others intentionally take overpriced listings.

This type of agent now has the perfect fallback plan. Not sure about the comparable sales? Hey lets just value range price it. Now we don’t need to be accurate – brilliant!

Folks if you want to sell your home for the most money forget about pricing gimmicks. Price your home at or near the market value and you will see the results you want. History shows us over and over again that a home priced properly on day will fetch more money than homes that aren’t. Price reductions and extended days on market are your enemies.

If you started with value range pricing and realize it was a mistake getting your home to the right price is critical. There are certain criteria that tell us when to drop the price of a home. Use this as a guide to know when it is time to adjust your homes price.

Other Helpful Resources on Pricing a Home

Use the above resources to understand why pricing your home correctly is essential for getting top dollar. Those who price as they should will be sitting at a closing table with a smile on their face and far less stress than those who don’t!


 

About the Author: The above Real Estate information on value range pricing was provided by Bill Gassett, a Nationally recognized leader in his field. Bill can be reached via email at [email protected] or by phone at 508-625-0191. 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 Real Estate sales in the following Metrowest MA towns: Ashland, Bellingham, Douglas, Framingham, Franklin, Grafton, Holliston, Hopkinton, Hopedale, Medway, Mendon, Milford, Millbury, Millville, Northborough, Northbridge, Shrewsbury, Southborough, Sutton, Wayland, Westborough, Whitinsville, Worcester, Upton and Uxbridge MA.

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Comments

      • Michael Donovan says

        Glad to see you are against “Value-Range-Pricing” (usually provided by “Free-Range-Realtors”) because I wasn’t 100% sure because you were so diplomatic. Over the past 20 years I’ve seen this concept sweep into a market, create confusion & havoc and sweep out to wait for another time to show it’s ugly head.

        There is nothing that sells a home faster and at the most fair price (for both buyer and seller) than an accurately priced listing.

        • says

          Michael I think value range marketing is a ridiculous gimmick that does nothing but confuse people. You are right I was a little more diplomatic than usual. I see a lot of real estate agents who use this tactic in taking overpriced listings.

  1. says

    You’re one of the smartest guys I know but I want to put my 2¢ in on this one as it works very well here, in San Diego, as long as agents don’t use a ridiculous range.

    There is no deception to anyone. 1) On most websites, the MLS feed shows the “high” not the “low.” 2) In real life, a home has a value in a range (if my son lives on that street, I may pay $10K more than the next guy); that’s also why 2 appraisers may arrive at two different values. 3) This is a town that has significant variation in price on the same street. 4) Buyers are not shy about bringing a low offer – with value range, they’re forewarned that Seller doesn’t have to consider anything below a certain figure (although often they do).

    Prices are variable everywhere as concessions, market conditions, length of escrow, financing, and many other factors determine whether you will end up at the high – or low – end of the range.

    It’s our nature to resist and fear most new things. Realtors thought it was awful when the system was first introduced in the 1990’s, until we realized it was helpful and made sense

    • says

      Gabrielle – I really think you are missing the big picture with value range pricing. First most MLS boards around the country are not set up to handle this type of pricing. If yours is that’s great. This may help a bit because at least consumers can see there is something different going on. Showing the high price does not change why this is a bad way to price a home. Here is why which I mention in the article. First how does this help the seller? Why not just price it where it should be priced?

      More importantly for MLS boards where this kind of pricing is not set up, how does it not deceive a buyer? Let’s say you have a home value range priced from $500,000 to $550,000. The seller wants closed to the $550,000. The buyer can only qualify to spend $500,000. What was accomplished by having a buyer look at a home where there isn’t a chance they can purchase it? Everyone’s times is wasted in this scenario.

  2. says

    Value Range Marketing, to me anyway, is a gimmick to confuse buyers, more or less a bait and switch tool. There is no question that getting the price right is a challenge whenever an agent is winning a listing. Over price and the house sits, you may have won the listing but pissed off the seller. Under price and a few things happen, a bidding war, or a seller who does not get the right price. Of course if only one buyer wanted the house at the price offered maybe it wasn’t under priced in the first place. If I was to price a house in a range, that entices buyers to run out to get a deal, but how does the seller get the higher range, they hope for a bidding war. Maybe in a sellers market that may happen, but who wants to pay more that the lowest advertised price. While there will be a number of opinions this, at least, is mine.
    I believe those most experienced agents, or those working for a broker who is in sync with the market activity, give the seller the best opportunity for a happy successful transaction.

    • says

      Frank we are certainly in agreement on value range pricing. It is bait and switch. What’s ironic is the fact it wastes a lot of time for those involved. The buyer, seller and agent are left with nothing when a buyer is looking at a home that they either do not qualify for or the seller is unwilling to deal at the low end of the range.

  3. says

    Great explanation of what Value Range Pricing is.Bill, like you; I find this method disingenuous and an utter waste of time for everyone involved. Here’s the secret to a successful and quick sale, study the market data, be honest with yourself and price it right to begin with. Regardless of the market you’ll get it sold quickly and often with multiple offers on the table to work with.

  4. says

    Interesting article! I think I have to agree with your assessment that you should use a range closer to actual value than this value range pricing idea. Thanks for sharing your insight.

  5. says

    Bill, I have seen this numerous times especially in large condominium markets. I’ve often wondered what it means because here in the Seattle area when I was an agent we didn’t use those at all. I don’t even know if they are allowed in our MLS. But now I know what it means and your description and information has been a most helpful.

  6. says

    Appreciate the in-depth look at this pricing strategy, Bill. Many home sellers and Realtors don’t use the tools available to price a home right from the start. A pre-appraisal is one of those tools. It’s the only way to accurately and confidently determine the current market value of a home before listing it.

    • says

      Deb while I will agree with you than an appraisal can be a valuable tool, it is absolutely not the only way you can accurately determine a homes value. In fact just like any other business there are good and bad appraisers. There have been plenty of times over the years where I have seen an appraiser give a value on a home and was left scratching my head. Remember what an appraiser is doing is giving an opinion just like a real estate agent does.

      • says

        Sure there can be appraisers that aren’t good at their jobs (just as in any field), but calling an appraiser’s evaluation an “opinion” is misleading. Unlike real estate agents, appraisers are trained extensively to accurately evaluate a home’s worth. Based on whether the appraiser is licensed or certified, they are required to complete 150-200 classroom hours of appraisal education including a 15-hour course from USPAP (Uniform Standards of Professional Appraisal Practice). They must also obtain 2000-2500 hours of appraisal experience within 1-2 years, and pass the AQB-approved Licensed Residential Real Property Appraiser Exam.

        You also need to remember that while a person may not agree with an appraisal, it’s the only thing banks lend money based on, so the credibility of an appraisal (or pre-appraisal) is very high.

        • says

          I agree with everything you said Deb it is still an opinion. You could have 5 different appraisers evaluate a home and get 5 different valuations. What I totally disagree with is your previous comment “It’s the only way to accurately and confidently determine the current market value of a home before listing it.” Sorry but I completely disagree.

          Do you know how many times over the course of my career a seller has handed me a refinance appraisal saying here is the value of home? Many times the value is not accurate and clearly the appraiser was doing whatever the could to facilitate the lender getting refinancing business.

          Keep in mind that a good real estate agent gets to see all of the comps on many occasions. A real estate appraiser does not. I am fielding questions all the time from appraisers asking my opinion of condition on homes they want to use as comps on an appraisal.

          The bottom line is an appraisal is not “gospel” as you have stated when saying it is the only way to get an accurate value before listing.

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