I just read another blog entry about "value range marketing", an idea that's been tried by some real estate companies in the past to try to create more interest in their listings. The general concept is that a property listed in a price range of $375,000 to $400,000 will be seen by more people, and therefore create more offers, than one simply priced at $385,000. There are even stats that show this concept has created lower "days on market" for sellers. That may be, but I can't find anything showing that it creates more money for sellers - in fact, I don't see how it could. I understand that this has been very successful in the San Diego area, but once again, only in lowering days on market (feel free to comment if you know that market). Having worked in the Boulder County, CO real estate market for many years, I can tell you that one area franchise tried this for a few years, and almost went out of business! Here's the problem. Let's say you have a house to sell in Broomfield, CO. The market is pretty slow, and although a few years ago homes like yours were selling for $350,000, now things are down about 5%, so realistically, yours is now worth about $332,500. Like most homeowners, this is painful to contemplate, so telling yourself that the carpet you installed a few years ago and the water heater you replaced 6 months ago have added a ton of value, you decide to list your home for $340,000, even though your Broomfield Realtor tells you that you are being very aggressive in a market that doesn't support aggressive, and that you need to pay careful attention to market reaction. A month or so goes by with a few showings every week and maybe an open house, and then a lovely couple with 1 child and another on the way decide this is just the right house. They tell their buyer's agent that they really like the house and will pay a fair price, but not overpay. The buyer's agent research shows that comps support a price of $332,500, but suggests an offer below that to "test the waters". An offer of $328,750 is submitted, and the seller comes back at $335,000. Husband says OK, but the wife has looked more closely at the comps and the contract and says to her agent, "Tell them we don't see how it can appraise for more than $332,500, so that's our final offer, and they can take the washer and dryer- we just got new ones 3 months ago anyway" Bingo, we have a deal at $332,500, the real value of the home.
Now rewind to a "value range marketing" scenario. Your house in listed as "seller will entertain offers between $325,000 and $350,000. Of course, you really want that $340,000. Our young couple sees the house and figures, "Heck, houses in the area are selling for 97% of asking price, let's offer 97% of 325,000 - the ad says they'll entertain it" The problem is ,of course, that you won't, because that's only $315,250, but your Realtor beats you up enough that you come down to the real value of $332,500, and send off a counterproposal. Husband says "OK", but the wife says, "wait a minute - they want us to come up more than $17,000 - thats almost 5%! These people aren't realistic!. Let's find a different house"
I believe that VRM creates more scenarios like this - it certainly did in my experience. Realtors, is anything here not real world? I welcome your comments.
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Hmmm... an interesting position, Rich. Only I'd probably question the end-game described in your post.
I read the blog article at the RealBlogging site I believe you're referring to. While I would tend to agree with you at a macro level, I think I respectfully split with you on the value of VRM at the agent/client level. What I mean by that is that I believe the benefit of VRM is to bring clients together in dialog sooner. But this has implications. Specifically, implications about the skills of the agent to facilitate productive, bridge-building dialog between parties to a transaction.
In the end game you described, I would argue the Buyer's agent is doing the client a disservice. I think if an agent allows her buyer-client to walk away emotionally frustrated because the Seller's counter-offer is "unrealistic" at 5% ($17k) above the initial offer, then the agent hasn't done enough to objectify the scenario for her client. Essentially, the client is now missing an opportunity to receive information on which to base a well-reasoned decision.
I say this because while the $332.5k counter-offer in your scenario is, as you layout, 5% above the Buyer's initial offer, leaving it at that totally misses the point that it's also 5% below the Seller's high-point. And, I might add, about $5,000 below the Seller's mid-range. Not an unreasonable counter-offer, as it turns out. As an agent, it's my job to point that out.
As a buyer, I might actually later resent my agent for not bringing this to my attention when I was in "the heat of the moment." Add to that a missed opportunity to be the owner of my dream home (potentially) because of a difference of $107 per month. (The $17k difference at 6.5%/30 years.) That's the cost of a daily dose of a grande cafe latte at Starbucks. I'd gladly give that up in exchange for ownership of my dream home. I wish my agent had been more skilled. Too bad, so sad. :-(
I concede VRM isn't a panacea. But when used with skill, it can help bring buyers and sellers together so they can begin a dialog that helps them bridge gaps. It's the agent's professional responsibility to hone communication and negotiation skills to facilitate that bridge or, at the very least, present objective points of view so the client at least has a shot at making an informed decision.