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"The Proof is in the Puddin'" Range PricingRevisted

Hi folks. The following post is part of my "oldies but goodies" series. I first published this on October 6th 2006 and it was a "Carnival of Real Estate" winner. I hope you enjoy it.

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Range Pricing. 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.

Posted by Bryant Tutas Broker/REALTOR(R) Tutas Towne Realty, Inc on 10/07/2007 03:50 PM

Comments (34)

range pricing, oldie but goodie

34 Comments on "The Proof is in the Puddin'" Range Pricing****Revisted****

OCT

2007

Reserved Parking For "The Lovely Wife"...TLW...ROAR!

Blog Boy...

Uh. Oh. I think I need to say "Giddy Up" :)

In all seriousness...I can't wait to see what other's have to say about our 'world famous' pricing technique :)

P.S. You're going to be sorry you posted this. On your mark...Get set...Pee on them :)

TLW...ROAR!

I want to point out the last 10 sales were from when I wrote this post last year. Notice the average sales price of $231,000. My average sale price for my last 10 sales this year, same period, is $197,000!! That's a 15% decrease! Values in Poinciana are actually down about 25% to $30% from the peek in late 2005.

I am one that, I guess, doen't get it. If I were a buyer and I made an offer at the bottom of your range and you did not accept, I would wonder why you listed it with the price to begin with. I would feel like you just wanted to bait me in to negotiations, which is what you wanted, and I would probably be a little pissed off and walk away. If you are going to list a price on a home it only make sense that the buyer will expect that you will accept an offer at that price, unless of course you have multiple offers. However multiple offers are not even mentioned in this scenario. And not to be a total jerk, but I think your analogy is bit far fetched as well. I am anxious to hear how others have done with range pricing or if you can explain to me what I missed.

Bryant- I was raised with brokers who really had a thing against range pricing. We just put in our first range priced listing. I think that in this market this is a viable marketing option. So now I am more open to it. Thank you for the analogy. The agents here do not use it at all. Maybe one in 5000 might use it. It would have us stand out from the crowd more on the MLS I think too. Katerina

BB - I'm with Roy - I guess I'm still trying to wrap my head around it - we've never done it like that - thanks for the analogy and I'll hang out to learn more. :-)

OK I may be sorry I reposted this one as I have truly talked myself blue in the face on this technique. But anyway here are a couple of things to consider.

Open your mind to the possibilities.
I work for sellers NOT buyer.
My initial goal when listing a property is to get people through the front door. That's it.
List price has NOTHING to do with what an acceptable sells price is. Never has and never will.
Range Pricing is FULLY disclosed in the first line of the remarks section in the MLS. Buyers and REALTORS(R) know the property is RPed PRIOR to looking at the property.
Most properties will sell at market value no matter what the list price is.
When using RPing the "target price" MUST be in the middle of the range or it won't work.
If the target price is too high then just like any other over priced listing it will not sell.
RPing is nothing more than a way to get the property to show up more often on a MLS search. More "hit's" more showings. Very simple.
It is 100% legal and ethical even though some MLSs frown on it.

#7 helped for me. I was thinking that the seller was still expecting to get the top of the range. I am going to dicuss this with my broker, and should he and our MLS allow it I may see if a seller I nknow that is almost ready to list wants to concider this strategy. I will let you know how it goes.

You may be making comments on this one for a few days.

Katerina, This market is an excellent time to step out of the box and try different things. I've been RPing properties for 10 years. REALTORS(R) in my market still complain about it and I still continue to sell homes in less time and for more money. Sellers LOVE it and I have NEVER had a buyer that didn't get it. REALTORS(R) are the only problem. It's an excellent way to get better positioning for your listing in the MLS.

Hi Cyndee, It is different but it does work. Stay tuned it should get good in here:)

Roy, The sales price is still the price negotiated between the seller and the buyer. It may be less than the bottom of the range or it may even be more than the top price. But if the property is priced right it should end up in the middle. All I'm doing is opening the door for negotiations. Also, check with your MLS they may have specific rules governing RPing. If you do use it be prepared to defend it.

I am guesssing if I stay tuned here I will get a FAQ sheet on frequently asked questions.

The part I am still confused about is the range.

If the seller will not accept the listed price how can that be part of the range? If a buyer comes in with a cash offer for the listed price and the seller refuses it, isn't a commission earned at that point?

Randy, The commission is an agreement between the listing broker and the seller. The co-broke in the MLS is an offer of compensation for an accepted deal and is between the two brokers. My listing agreement specifically states that the property is range priced and the top price in the range is considered a full price offer. Our offer in the MLS states the same thing. A BA cannot go after a seller for a commission if it is listed with a REALTOR(R). They can go after me but only if the deal is accepted by the seller. Only the listing Broker can sue the seller for compensation. Plus the seller may very well accept the lower price in the range. It happens all the time.

Roy, My 3 posts linked below and the comment threads should tell you everything you need to know about range pricing including the issues you will have to deal with with the MLSs.

http://activerain.com/blogsview/Home-home-in-the-range-?712

http://activerain.com/blogsview/-The-proof-is-in-the-puddin-Range-Pricing-part-1-275-?12752

http://activerain.com/blogsview/24876/Sherman-and-Broker-Bryant

BB, I don't want to sound rude...but seriously now... Is this really working today in Central Florida? I typically represent sellers as well, and in our MLS, the price listed for all see is the TOP END of the range, since the MLS changed the rules on us.

Are you really using this TODAY???

Buyers agents (if they're worth anything) are going to thoroughly check comps and advise their clients in our "correcting" market.

I'm completely open minded about this...and if it's working for you, I'd love to buy you lunch this week so you can explain it to me thoroughly.

I'm sure I would get lots of people looking at my $639K listing if I range priced it low enough, but many wouldn't be qualified. I gotta agree with many of the people on here. If the seller isn't willing to sell it that low then we shouldn't be advertising it that low. Many of these people are starting out with the misconception that they should look at properties 20K higher than what they are qualified for, because people will go down on their price. It's hard enough as a Buyers Agent to convince them that Santa doesn't exist. The people that are looking at the range price of 195-225 might only qualify for 180K. Traffic is nice, but it's an inconvenience to the seller when these people can't buy.

Christopher, The MLS has rules and guidelines NOT laws. Range Pricing was a perfectly legitimate way of doing business and NAR, FAR and the MLS agreed with this 10 years ago. Read my link above about Sherman and it will explain the battle then and how the MLS clearly out of the blue decided to waffle on their earlier ruling. I do not agree with them at all. I'm sure this is another battle that will need to be fought in the future. The MLS needs to be worrying about all the other crap that goes on in our system instead of telling me and my sellers how we can price their property. In my opinion it is a battle they will not fight and could not win if they did. Business as usual at Tutas Towne Realty. Prudential and several other very large franchisors agree with me. They changed the rule last year out of ignorance and they are wrong. But hey that's just my opinion.

I think the MLS needs to concentrate on grossly over priced listings, FSBO listings and inaccurate information in the system. I'm an honest Broker doing an honest job for my sellers.

Chris, I have sold over 400 homes using Range Pricing. Both sellers and buyers have been more than pleased. I have NEVER had a consumer complain. Please remember RPing is fully disclosed in the listing. It is not something we are springing on them later. If they can't afford the property then they don't have to look at it. But again the seller may very well accept a lower price. The whole point is to get negotiations started.

I couldn't agree more with your feelings regarding the MLS. And I'm not calling you out on your honesty as a Broker at all.

I agree with you on getting negotiations started. But how many buyers in this market are walking when they offer the price listed (low end price) and you counter them at a higher price?

I just want to know if it's working in this market? If so, I'm all about it!!! If it's working, it may be worth a $50 MLS penalty. Let's see today's puddin.

Amazing. It was just the other day that I recalled a post of yours about range pricing. THE MORE PROSPECTS YOU GET THROUGHT THE DOOR, THE BETTER THE ODDS ARE (my opinion). Is this deceptive? In this market? HARDLY. That would be my first concern, if the reality is that the sellers won't take the lower price. ON THE OTHER HAND, in a declining market, WHO KNOWS? And yes, once the buyer creates a mental commitment that is followed up with an offer, the interest is THERE. Not unlike being on site with a dirt cheap spec home that is advertised and brings people in, but also available, a lot upon which they can buy their home and put what they WANT into it- but, it's a bit more- make an offer, and see if the builder will take it. I like it enough to try it. Thanks, once again.

Christopher, I will put up a new puddin' chart when I'm in the office tomorrow. The biggest advantage of RPing is it gets offers on the table....from there who knows. Sellers love offers and their "wants" change every day. Christopher I know you are not calling me out. We are having a discussion. Opinions are ALWAYS welcome on my blog.

Laurie, as you know builders are AWAYS luring buyers in with the old "prices starting at". RPing is actually no different than this. The key though is the property still has to be realistically priced. Many folks try RPing and fail because the property is still over priced. RPing will not change that fact. It also has to be a realistic spread to the range. You can't price $150,000 to $200,000 trying to get $180,000, it won't work. But you could do $170,000 to $190,000 trying to get $180,000.

OK- so keep the spread realistic in both directions- really, with that kind of difference and a buyer that wants it, what would prevent the seller from understanding that the market is WHAT IT IS, and benefit from that knowledge? Dear God, I'm going to hit NY with THIS, NOW? Yup...I think I am. Sellers need out, and this provides them with a true gauge.

We discussed this to death on the MLS Committee, I think most people just don't get it. Your analogy really opened my eyes to the value of it.

I know you use MLXchange, how do you put that in the listing under price ? We use mlxchange here to and I'd like to see a listing of how you enter it. Missy@MissyCaulk.com, you can send anytime, I am really curious. I need to see how it would look. I will be President of MLS in January and would love to revisit it.

Anything to get these houses moving I am all for.

I used to work for a brokerage that did value range pricing. It was a similar strategy, but had to do with contingencies. If there are a lot of contingencies, you have to pay full price. If the contract is clean and you're paying cash, you can buy for less. It's really just common sense, but since the world is severely lacking in common sense, they put a label on it. It seems to work.

OCT

2007

Well put Bryant. The story really conveys the point nicely. Is range pricing helping any in this market?

Missy, Our MLXchange has a field for list price and low price. Before they changed the rule, the list price could be any figure within the range at the listing brokers sole discretion. Last year they changed it and now require the high price to be used as the list price. This defeats the entire purpose of range pricing and basically rendered it useless. They did this because they don't understand it and were small minded.

However, I choose to ignore the ruling and use range pricing the way it was designed to be used and also the way the MLS rules had stated for the prior 10 years. And that is:

The list price is the low price in the range and the low price field is the same. The same figure is in both fields. Then, and this is very important, the first line in the remarks must read:

"This property is Range Priced. The Seller will consider offers between 170,000 and $190,000 with $190,000 being a full price offer."

In this example, the value of the property should be $177,000 to $180,000.

Hi Lisa, It really does make sense. Not quite sure why folks struggle so much with understanding it.

Hi Joe, Thanks for stopping by.

Alright BB, I'm going to give it a shot.

BB - I understand the concept. It just seems like we open ourselves to that area of legal vs. ethical when we price a home using a bottom figure below what the seller will actually "entertain". Frankly, it just seems deceptive to me. I know it works, but so do a lot of other "techniques". I guess I'm in the minority here. Maybe it's because I've seen it used badly too often in our market, where the seller actually wants the top of the range or more for their homes. It just smacks of bait and switch.

There's nothing complicated about range pricing. It's sort of like the menu at Club 21 in NY. There are no prices on the menu.

The menu is merely a suggestion of what's available.

Marlene, idon't think you are in the minority. initially I had planned to talk to my broker and possibly try RPing. However, after some more thought and reading several of the comments here, I agree with you. Even though, in the end, I can say I had disclosed all the info on the price range, I think that a buyer will feel like they were baited in.

Never cared much for puddin'...but you and granny are helpin me acquire a taste...interesting blog

David Kelso

Newbie

Century21 Sundance

DaytonaBeach

Hi David, Thanks for stopping by. Granny says hi!

Lenn, It's so simple, so effective yet so misunderstood. Oh well if everyone used it I would have to do something else different.

Roy, Buyers truly do not have an issue with it. Most are very pleased they were able to purchase a home they would not have seen if it weren't range priced.

Marlene, One of the issues is that most folks that try to use Range Pricing don't use it properly. Used properly it is an EXCELLENT technique to get listings sold. But of course it wouldn't work in all markets. I have trained the REALTORS(R) in my area on how to approach it with their buyers. Education is key.

Christopher, Go for it. Just make sure your Broker approves.

OCT

2007

Interesting concept. Great analogy. I've never heard of range pricing before, and I've definitely never seen it in New Orleans. Has this always been common in Poinciana?