"The proof is in the puddin'" Range Pricing part 1,275!

By
Real Estate Broker/Owner with Tutas Towne Realty, Inc and Garden Views Realty, LLC BK607690

Range Pricing. “The Lovely Wife” wrote a great post yesterday explaining this technique and how it works for us, to sell properties. This seems to be a subject that some Realtors are just having a hard time getting their heads around. So, with that in mind, I am going to try and address one of the questions, in a different manner, to see if it will help. The biggest question seems to be Why would a Buyer offer and pay more than the bottom of the Range?” Now I agree this is a good question. So I am going to tell you a story about Little Bobby. Hopefully, this analogy will help shed some light on this. It helps to remember, that purchasing a home, is as much an emotional decision as it is a financial decision. People want what they want and in a lot of cases, people want what they can’t have. This is human nature and I hope everyone agrees with this. Ok, here goes.

  • The place: New York, NY
  • The characters: The shopkeeper- Mr. Sell A. Lot and The customer- Little Bobby

Mr. Sell A. Lot owns a shop, in NY, that specializes in selling used toy cars, on assignment. In his shop, he has many shelves of cars organized by price(MLS). He has a $1.95 shelf and the cars on this shelf are all very similar in size and style. He also has a shelf with cars that he wants $2.15 for. These are a little bit bigger and a little bit nicer. Very shiny. For some reason he is having difficulty getting the children to look at the cars priced at $2.15. They always seem to want the $1.95 cars instead. Mr. Sell A. Lot knows that if they would just look at these other cars they would love them. So he has an idea. Mr. Sell A. Lot takes one of the $2.15 cars and places it on the $1.95 shelf. He writes on the bottom of the car “This car is Range Priced. The Seller will consider offers between $1.95 and $2.25 with $2.25 being a full price offer.” When he steps back and looks at the $1.95 shelf he is really happy. The new “$1.95” car really stands out, it is so much better than the others. Very shiny.

Little Bobby’s birthday was yesterday. Uncle Broker Bryant sent him a nice card with $2.00 in it and told him to go buy something nice for himself. Little Bobby has always wanted a car. He has been looking in all the toy car magazines and has been searching Realcar.com. He remembers Mr. Sell A. Lot’s shop down the street and decides to pay him a visit. My Sell A. Lot seems like a nice guy. Little Bobby sees his picture on all the bus stop benches and gets an occasional post card from him. Once he even got a beautiful magnet with a car calendar attached. It was cool!

Anyway, Little Bobby goes into the toy car shop and immediately starts picking up and looking at all the cars on the $1.95 shelf. He can buy one of these and have a little money left over to maybe buy an accessory or two. They are all pretty nice. When he gets to the end of the line a glimmer catches his eye. Wow, look at that one! Man, that car is a lot nicer! It’s very shiny! Little Bobby has made up his mind. He must have that car. So he runs over picks it up and takes it up to Mr. Sell A. Lot and throws $1.95 on the counter. Mr. Sell A. Lot rings it up and says $2.25 please. Now, Little Bobby is a perplexed, so, Mr. Sell A. Lot shows him the bottom of the car and explains to Little Bobby that the car is “Range Priced”. Little Bobby is a little disappointed but still wants that car. It is so much nicer than the others. And very shiny!

So, Little Bobby, quickly getting over his disappointment, he really wants this car now that he has seen it, tells Mr. Sell A. Lot that he will give him $2.00, even, for it. Mr. Sell A. Lot explains to him that full price is $2.25 and he will not take $2.00 for it. Little Bobby thinks for a minute and decides that his Mom will give him a little more money because he has been such a nice boy and really does have a good score at school. Little Bobby says, “I really want that car Mr. Sell A. Lot, how about I give you $2.10 for it.” Mr. Sell A. Lot responds “Bobby, I know you really like that car, so here’s what I will do, I will sell it to you for $2.15.” Bobby exuberantly says, “Sold” and runs home to get another $.15. Bobby is real pleased, he got a better car than he had planned on getting and he was a shrewd negotiator and got Mr. Sell A. Lot to “reduce” the price to $2.15.

Mr. Sell A. Lot is so happy he takes all of his cars and “Range Prices” them. Business really picks up and Mr. Sell A. Lot, and his shop , are the talk of the town. Mr. Sell A. Lot changes his sign out front, it now reads: Best cars in town, Range Priced, make me an offer. Next!

So there you have it. My meager attempt at an analogy to hopefully shed light on why “Range Pricing” works. Never underestimate human nature.

Little Bobby may even have Mr. Sell A. Lot, sell his car for him when he is ready to upgrade. He was a really nice man! If he hadn’t placed this car on the $1.95 shelf, Little Bobby would have never seen it! And would have had to settle for less.

Why would a Buyer offer and pay more than the bottom of the Range? Because they do!

My last 10 sales are below. Notice DOM and list/sale price differential. Average DOM, in my market, is 98, right now. The proof is in the puddin’ as my Grandmother used to say.

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Anonymous
same buyer

ok, another question for you:  has a seller of yours or others you may know worked with a potential buyer (i.e. countered) that wrote an initial offer that was below the low end of the range?

Dec 20, 2007 08:05 AM #96
Rainmaker
1,136,378
Bryant Tutas
Tutas Towne Realty, Inc and Garden Views Realty, LLC - Winter Garden, FL
Selling Florida one home at a time
My sellers will counter all offers. We negotiate just like we would any other offer. I have had sellers who have  accepted offers below the range. The RPing is just to get buyers through the door. From there, make us an offer. Hope this helps
Dec 20, 2007 08:10 AM #97
Anonymous
GeneK
This technique might work on little Bobby, but in today's market anybody older than 12 or so can see that Mr Sell A. Lot's store has little toy cars piled up as high as the ceiling and he hasn't sold one in months.  If little Bobby's mom lets him go back to that store at all she's going to take $.50 out of Uncle Broker Bryant's gift, put it aside for Bobby and tell Bobby to offer Mr. Sell A. Lot $1.50 for that toy car. 
Jan 11, 2008 08:36 AM #98
Rainer
4,985
Joseph Skinner
Skinner & Associates Realty - Myrtle Beach, SC
Myrtle Beach Real Estate

Many of my sellers want to be sure that they stay "within range". They will counter if the offer is out of range but might be more flexible once they see that the buyer is ready to back out.

Jay

 

Feb 19, 2008 01:24 PM #99
Anonymous
Dan Thibeault

I am a broker from MA.  I would like to hear your response to Ryan from CA.  I find the entire package to be deceptive.  I agree with Ryan that the disclaimer might make it legal, it does NOT make it ETHICAL.

2 cases.

Case 1: Buyer looking at RP new construction advertised with stainless, granite and all the toys is told that for the middle of the range she does not even get carpets let alone the goodies.  How does that help sell the property. The Seller will not sell for the bottom af the range, it is a lie.

Case 2:  RP on a "distressed property" in our neck of the woods is 249,900 to 299,900.  Buyer searching up to 250 sees this property and has legitimate interest only to find out they are 50K (17%) away from accepability.  How does this help?  It leaves the Buyer "with a bad taste in their mouth" as John R said.

I think tomorrow I'll RP all my listings from $1.00 to $8,000,000.00.  I'll be on top of every search whether I belong there or not.

Mar 18, 2008 09:00 AM #100
Rainmaker
1,136,378
Bryant Tutas
Tutas Towne Realty, Inc and Garden Views Realty, LLC - Winter Garden, FL
Selling Florida one home at a time

Hi Dan, Thanks for stopping by. It works and is neither illegal or unethical. It's just different. Don't complicate it. It really is nothing more than a technique to get people to look at the property more often. If you were a seller that would be a good thing. Wouldn't it? The key of course is it still has to be priced realistically with the target price in the middle. The seller may very well sell for the bottom price, or less. We are not dictating an acceptable price. We are just inviting folks to make an offer. If you really want to get technical ALL properties are range priced form $0 to list price. All I'm doing is narrowing the range that already exist.

In your second scenario the range is too wide and if the seller wouldn't even consider $249,900 then is it not priced properly. That is not a reflection on whether or not Range pricing would work but is a reflection of an agent not pricing properly. 

In your first scenario....builders will rarely sell the fully loaded property for the advertised price. Have you ever sold a KB Home? Their base price doesn't include anything that's in the house folks see. ALL builders use range pricing in their own way. "Prices starting from the low 200s" Is Range pricing whether they know it or not.

Hope this helps.

Mar 18, 2008 10:03 AM #101
Anonymous
Amy

I too find it deceptive, and I think that things work much differently in other parts of the country.  I'm in New England as well and I have yet to see one RP sell within the range (mostly because I've only seen about 10 or so RP houses on the market here).  Most of the time, I see places languish on the market, then switch realtors, price much lower, and finally sell.

I agree with the poster above - just because it's legal doesn't make it ethical.  If your intent is to NOT take anything less than the higher price, then you are pretty much "creatively" working the system in order to appeal to a wider audience.

To put it in perspective - subprime lending may have been legal, may have helped us sell houses at one point, but was it the right thing to do???

Apr 09, 2008 04:22 AM #102
Rainer
2,501
Eric D.M. Gibbs
Coldwell Banker Residential Brokerage - Tucson, AZ
Realtor, EcoBroker

I understood RP back in 2005-2006 at the peak of the market. Now in a depreciating market RP doesn't in most cases reflect the current market. You see homes on the market RP'd, DOM 100 days+ and not selling. Yet the RP never changes. I believe it is our responsibility as real estate practitioners to educate our sellers concerning the market conditions in their area. Showing them the data of what houses are selling for in todays market in relation to what houses were selling for at the peak of the market. When you RP a property and it is not selling in a depreciating when do you drop the price below the RP? Most agents are chasing the market down, and allowing their sellers to chase the market.

Buyers are not putting offers on property unless they see a great deal. From my experiences and talking with other agents buyers tend to stay clear of RP properties, especially after seeing the data on what homes are selling for in the area and the RP not reflecting current conditions. When it states "seller will entertain offers between $$$-$$$ buyers run. I agree with others that RP is very deceptive. 

Pricing the home correctly when it is first listed takes some work, and pricing it without RPing is so much better for the buyer. 

Jun 08, 2008 10:51 AM #103
Rainmaker
1,136,378
Bryant Tutas
Tutas Towne Realty, Inc and Garden Views Realty, LLC - Winter Garden, FL
Selling Florida one home at a time

Eric, RPing will only work if it priced properly. For example: Lets say a home is worth $110,000 and should sell in the $100 to 105 range. Assuming the listing agent is pricing properly it may get priced at $108,000. Now what if instead it was range priced from $99,000 to $109,000 with $99,000 being the list price for MLS purposes. Which property will get more activity?  

Now lets also assume that the buyer is looking at homes in the $100,000 range. My listing of course would show up on a home search where the same house price at $108,000 would not. Not lets also say that while picking out homes to show the realtor notices that not only is my listing superior to the $100,000 homes but it's also exactly what his buyer is looking for. He will more than likely show it. The buyer will like it because it is superior and will make an offer. I don't care where the offer comes in. He can offer $80,000 if he wants. My seller will counter as they would any offer and we try to negotiate a deal. If it's a value at $105,000 that's probably where it will end up.  If it's only worth $95,000 then that's where it will end up. Range pricing has NO effect on market value OR negotiating. However if used properly it will get folks through the door more often. That is the only motive.

Now having said all of that, I only have about 50% of my listings RPed right now. That is certainly due to the current market. But not because the buyers won't look at them but because the sellers are so tight on their mortgages that they just don't have room to negotiate so we need to be very specific on the pricing. And of course it makes no sense to RP a short sale or REO listing.

Thanks for stopping by. I appreciate ALL opinions.

Jun 08, 2008 11:11 AM #104
Rainmaker
32,038
Susan Zanzonico
Berkshire Hathaway Home Services - Morristown, NJ
Sellers/Buyers Agent, Morristown NJ Real Estate

The market has changed alot since this was written.  The market here is better than most due to New York and the train line.  Its still very hard to get sellers to price in the range where they should be in this market. I agree that getting something on paper is a critical starting point.  Anything can happen from there as emotions and conversations get going.

Jun 10, 2008 05:53 AM #105
Rainer
9,827
Kye Grace
Sutton Group - West Coast Realty - Vancouver, BC

Very interesting concept. Seems ethical to me, as it will state within the listing the information regarding the pricing format.

Do the people who feel otherwise simply read the price and address and head on over?

I say this somewhat tongue in cheek, there are plenty of fields one should read in an MLS listing before taking prospective buyers to a property.

Anything that is unusual should likely be discussed prior to the viewing to save everyone the time. If the buyers don't like the idea of range pricing and feel it is unfair then don't show them the property.

No different than if a home is a Leasehold, let them know, explain the implications and ask if they still want to view the property. They sure would be disappointed after the fact to find the price was so low because they can't buy the land but rather the right to use it for a set period of time...

My thoughts anyways...

Aug 22, 2008 12:39 PM #106
Rainmaker
1,136,378
Bryant Tutas
Tutas Towne Realty, Inc and Garden Views Realty, LLC - Winter Garden, FL
Selling Florida one home at a time

Kye, "Do the people who feel otherwise simply read the price and address and head on over?" Absolutely without a doubt. And normally they didn't find out until after they submitted and offer and we countered!! How scarey is that? Submitting an offer without reading the MLS remarks. Yikes!!!

Aug 22, 2008 12:46 PM #107
Rainer
2,335
Beach Report
St. Augustine Reports - Saint Augustine, FL

you are right - this post is a classic.

Aug 30, 2008 10:42 AM #108
Rainmaker
271,873
Marilyn Katz
Berkshire Hathaway HomeServices New England Properties - Westport, CT
ABR, e-PRO - WestportCTProperties.com

BB- You're certainly correct that this topic brings out lively debate. 

At Prudential, we have set ranges for our Value Range Marketing (PVRM.)  Not every property works well in those ranges.  The agents who have been successful with this marketing tool usually find that the final price is somewhere in the middle of the range.  In our local MLS, we have to put the listing  at the higher price.  In the remarks we add, "owner will entertain offers between xxx and xxx."  In this market, that provides a nice parameter for all the buyers who want to low ball every offer. 

Aug 03, 2009 09:17 AM #109
Anonymous
Chris

As I buyer this 'technique' just pisses me off, everytime I see a house with a range I disregard and use the lower bound as the 'price', please stop making real estate more complicated than it needs to be, choosing the right house is hard enough!

Mar 09, 2010 02:24 AM #110
Rainmaker
1,464,290
Maureen McCabe
HER Realtors - Columbus, OH
Columbus Ohio Real Estate

Broker Bryant are you stil using it? 

A blog on Psychology Today called "Priceless"??? Something about "Price" anyway   is recommending Range Pricing.  The author of the blog is not in the industry nor is he a psychologist... but he writes about price and value for Psychology Today's online site. 

I took his recent article to mean there is less stress for a seller in todays market  with a range.  Comment above made me think about the other half of consumers.

Mar 09, 2010 02:46 AM #111
Anonymous
GeneK

How buyers view "value range" pricing in today's market:

A house is "value range" priced at $700k-$750k.  Offer $650k and if the seller counters with an amount over $700k, walk away.

Mar 09, 2010 02:52 AM #112
Rainmaker
1,136,378
Bryant Tutas
Tutas Towne Realty, Inc and Garden Views Realty, LLC - Winter Garden, FL
Selling Florida one home at a time

Hi Maureen. I haven't used range pricing since the market changed in early 2007. It doesn't make sense today since we are in a declining market.

You can see by the comments in this article that many agents don't get and some buyers don't like it. But none the less it worked. My properties sold quicker and for more money using  this technique. Fortunately for me I worked for the seller and didn't really care what the agents or buyers thought. I just wanted to selll the property for my seller.

In my market right now properties are selling on avearge for 105% of the asking price. So it's really know different than wheb we used range pricing. Now properties are just priced low and bidding wars are created. Same thing.

Buyers who base their offers on asking price instead of the value of the property will end up not being able to purchase. This is true in ANY market.

Is this article linked in the article you mentioned?

 

Mar 09, 2010 03:04 AM #113
Rainmaker
1,464,290
Maureen McCabe
HER Realtors - Columbus, OH
Columbus Ohio Real Estate

"It doesn't make sense today since we are in a declining market."  That is what I thought was so odd about the recommendation by a pricing guru (but not someone in the real estate field)  to use it now to price homes.  His example is in LA and he is talking about using the Zillow value... I mean the Zesitmate value on a historic LA home as the low price, but as the low price.  He is


Home Won't Sell? Try Two Prices Instead of One
  the post by William Poundstone a physicist and author says:

"There may be a smart psychological tactic for anxious home sellers: List a house with two prices. In Australia, it's been the custom for sellers to do that, giving a minimum and a maximum asking price."


I understand why  the Value Range prices works in an appreciating market.   I have tried to leave a comment on the post a couple of times and it won't let me.

Mar 09, 2010 04:53 AM #114
Ambassador
812,373
Lynn B. Friedman
Atlanta Homes ODAT Realty Call/Text 404-939-2727 Buckhead - Midtown - Westside -- and more ... - Atlanta, GA
Concierge Service for Our Atlanta Sellers & Buyers

Dear Broker Bryant,

Always interesting to learn about your techniques.
Would be nice to have some of your sense of humor.
This is so true - ALL builders use range pricing in their own way. "Prices starting from the low 200s" Is Range pricing whether they know it or not.

Have a happy day -
Lynn

Oct 30, 2012 12:12 PM #115
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