The Internet has truly changed the way we sell our homes. Consider this: In the old days, buyers had to rely on a lawn sign to know when a house was up for sale. They would typically drive around neighborhoods looking for attractive houses. When they found one, they would call the listing agent and request the price. The listing agent would then spin their best sales pitch before ever giving the interested buyers an answer.
After getting the price, the prospective buyers would decide whether it was in their range and if so, they would schedule a showing. In this scenario, the exact listing price is meaningless in attracting the buyer’s inquiry. The initial call was created by the neighborhood and curb appeal. This system forced buyers to call on properties regardless of the listing price to get more information. This gave the real estate agent an opportunity to sell the features of the property. It also exposed buyers to a wider price range because the only indication they had of the potential price of a home was the general market area.
The Internet, however, has changed everything. Buyers can now search for properties based on the city, school system, number of bedrooms or bathrooms, architectural style and a myriad of other criteria. Price, however, still remains the number two search parameter, second only to location. Because of this, you must price your home very carefully to ensure that it shows up in the greatest number of searches, and to the correct audience.
With an increase in buyers searching listings on their own, it is important to understand how to use price to impact visibility, and thus selling opportunities, of your property. So how do home sellers make sure that their property shows up on as many listing searches as possible?
The Psychology of Pricing
The conventional pricing wisdom says you should list an item’s selling price a dollar (or penny) below your price point. For example, market your home at $249,999 instead of $250,000. It’s true that psychologically $249,999 sounds cheaper than $250,000; however, when it comes to computers this logic is ignored. In particular, the calculations are very unforgiving when it comes to buyers entering specific search criteria.
How it Works
Let’s assume that you’re trying to sell your home and you want to list it at $250,000. A typical real estate agent might suggest that you list it at $249,900 instead. The conventional wisdom is that $249,900 sounds like less than $250,000. So, you list the home at $249,900. Let’s also assume that a home buyer is searching a website for homes in your city. He decides that he can spend up to $300,000. In reality, most home buyers overstate their upper limit. So our client, while stating that $300,000 is his limit, probably can’t or won’t go over $290,000, and in fact would be more comfortable around the $260,000 to $270,000 range. When he enters his search criteria, he will be asked to enter a price range acceptable to him. The home buyer is most likely going to enter $250,000 – $300,000.
How it Affects Your Listing
Notice that your home missed the search. Had your home been priced at $250,000, not only would it have shown up, it would have been one of the least expensive homes in the results, making it a very attractive option. By pricing your home to show up at the lower end of a buyer’s price range, you are exposing your listing to the correct audience.
Now you might be thinking, “But my home will show up in all of the searches from $200,000 to $250,000. Isn’t that just as good?” Not really.
Assume that you priced your home at $249,900. Let’s also assume that another buyer is looking for a home and enters her search criteria as $200,000 to $250,000. What is her true upper limit, or the amount she is comfortable spending? It’s most likely somewhere in the $230,000 to $240,000 range. Since your home is at the very upper limit of her search range and most likely more than she can realistically afford, your chances of a sale are greatly diminished. Your home will be the most expensive home in this buyer’s search results.
You’re now up against two separate battles. First, since it’s one of the most expensive homes on the list, it must be nicer than every other home. Second, your property has to be compelling enough to stretch this buyer into her very highest affordability range. Unfortunately, she is the “wrong audience.”
As you can see, a slight price shift of just one or two hundred dollars can greatly affect your listing’s audience. Make sure that you and your agent take that into account when setting the listing price.
One last insider’s tip: List your home at a round number and appear in BOTH price brackets to cover all of your bases. In the example above, if the home seller had listed his home at $250,000 the home would have shown up in both search ranges, exposing it to the widest audience. I think we can all agree that in this case, the more the merrier!
Whether you’re buying or selling your home, for more tips about your home, money and credit, plus free tools to help you make the most of them – including a free credit score, home value estimate and home loan recommendations – check out Quizzle.com.
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Richard Pridemore is Director of Investor and Client Relations for In-House Realty’s Short Sale Solutions team. His team assists banks and servicers in identifying and liquidating troubled mortgage assets nationwide. He has been a licensed Realtor for 12 years, and is certified by the National Association of Realtors as a Short Sale and Foreclosure Resource.