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Best Offer Pricing - there’s more than one way to skin a cat (well, the MLS)

scared cat So Broker Bryant says his MLS won't allow effective use of range pricing anymore (by forcing the listing to be listed at the high end of the range, not the low end). I completely agree with him that this is an anti-consumer action and I think that frankly it goes against the NAR's own Code of Ethics as such. That sentiment aside, here's my next idea if I get shut down on range pricing in our fair (windy) city: best offer pricing.

Here's my outline on how to do it. Take the low end of the range price strategy and the list the property at the low end on the MLS. Since your intent (and the seller's) is to end up higher (not lower) than that number, state that this property is priced for best offer and that offers at $X [the stated listing price] will not be considered full price offers. This is relevant, as you don't want someone giving a no-contingency offer at the listing price and claiming they are owed a commission for presenting a full-priced offer per the listing. I don't know that there is a legal obligation to state a specific price at which an offer is considered full price, but please enlighten me someone if there is.

The only thing I haven't solved (again, input please) is whether there is any legal obligation to state an outside sales date for the acceptance of offers (i.e. some future date at which the seller must commit to accepting the highest offer in hand). I do not believe there is any such obligation, as all offers are invariably subject to differences, from close dates to financing contingencies, etc. and therefore no two can ever be truly considered "apples to apples". For large investment brokerage deals we've had the sealed bid style process in place since the advent of, well, investment brokerage, so there is always a deadline for bids, but that's a little different because the universe of potential buyers is less time sensitive and more easily captured in one moment for the sending of the offering memorandum. This is a slight derivative of that, without the need for an end date, or again, so I believe.

A start to this strategy was highlighted last week in a sellsius blog, conveniently about a listing in the Chicago area (our home market). This one had a $1 listing price and a statement about best offer. I don't like how that doesn't capture the important bracketing concept for search parameters, especially for higher priced properties, so I disagree with that application of my concept. Other than that, I think it's a strategy whose time has come, and for hot markets that regularly have multiple bids over the asking price, it's what's really going on anyway.

Posted by Gabriel Silverstein, SIOR on 12/13/2006 08:46 PM

Comments (25)

realtor stuff, marketing

25 Comments on Best Offer Pricing - there’s more than one way to skin a cat (well, the MLS)

DEC

2006

That is a great strategy that is formally known as an auction. Accepting bids (offers) unitl a specific period in time and then either accepting, rejecting or countering. Illinois does not require an auctioneers license, if you have a real estate sales or broker license, to conduct an auction in the state.

Good luck. Please let me know if I can assist.

Rich

Thanks Rich, though I'm not talking about a true auction, because I'm not putting an end date or bid date, just saying Best Offer, just like listing something on Craig's List.

So how do you guage when you have the best offer?

That, Rich, is the key. I don't expect sellers to hold acceptable offers in hand for days or weeks waiting to get a better offer (or not) while that buyer ends up going elsewhere. The phrase is not as literal as it is for an auction. Frankly, in part it is a workaround to the anti range pricing rules some MLSes have. To me, the best offer is the one that you and your seller believe will close and that the seller is comfortable being a fair price. Remember, without the wording, any listing in theory is a best offer listing, if there are multiple offers at any one time. Just like in that case, the seller still isn't obligated to accept the highest offer made, it's at their discretion so long as they are not violating any fair housing rules.

Dancing around 'correct pricing' to begin with is what I see as the real challenge. Neither the the seller nor the listing agent really determines the sale (closed) price...the market does. I realize we have to represent our sellers and carry their message to the MLS listing in put sheet. And I'm not sure I'm willing either, to simply walkaway from a listing because its a little overpriced or not bend to seller pressure. I sell quite a bit in Chicago and the days of testing the market with a higher list price just makes the property not even show up on the buyer's radar. On the North side in my average pricepoint (500-600K) the average market time is presently over 150 days active--and that includes MT manipulation (cancel then relist new with several little twists) Price ranging and any hybrid of that is a band aid solution to facing the reality that prices have not moved up much if at all these last 18 months. Even if commission was eliminated totally, what with tax pro-rations and closing costs, most sellers are still battling negative numbers from a profit aspect unless they resided there for more than a few years. And in my market, people don't like staying for much longer than that. Basically, doing our homework and pricing to sell in 60 days is the answer---REMINDER TO ME!

I agree, Geno, about pricing deals to sell. This, to me, is an enhancement to that. So for Broker Bryant to know that $179,000 is an appropriate price, he's range priced it from $169,000 to $189,000. Traditionally done, it would be priced at $189,000 and negotiated downward. I'm saying list it at $169,000 (well actually, I'd list it at $170,000 for better search bracketing). Offers are still, then, expected to be over $170,000 (and that's clear to everyone on the buyer's side of the deal), so your results are still over 100% of asking and your listings are moving out the door in a hurry.

DEC

2006

I only wish we needed range pricing here. Seems like a sensible way to go about it if it ever does become a reality in our parts.

Locally have seen some auctions with very low initial prices. To be honest I did not follow up to see if it sold or not. The MLS and advertising seemed deceiving as I believe the sellers had a right to reject all offers. It just seemed as a ploy to get a lot of offers.

Price it right, market it correctly, sell it and move on. - Just like Geno, REMINDER TO ME!

Soory for stealing the line, I liked it.

There was a listing in our MLS priced at $1. In the remarks it said, "Best offer to be accepted on xxx date" (I don't recall the exact date).

There was much discussion in our office on whether or not this was "legal". Many felt it wasn't for the simple reason that ANY serious home seller will at some point accept the "best" offer, and this "$1 listing was simply a way to get a listing to be at the top of a search.

Within a week the $1 price was changed to $350Kish. I agree that when "listed" at $1, they were missing a LOT of searches, as no one searches for $1 homes...

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Gabriel, Thanks for the post. The issue of pricing continues to be a moving target in this market. As was previously stated the market determines the selling price. Buyers make the offer and therefore set the stage for the negotiations and ultimately, the selling price. The problem we are having is that in many markets, buyers are not making offers in anticipation of further price reductions. Homeowners who purchased within the last five years do not have far to go with price reductions. Before they go to a negative, they rent with option to buy or simply stay put. I think the value range pricing format appeals to the consumer, that lower end price point is irresistible, it is the carrot to engage the buyer, a marketing tool. Where permissible, use it!

'Gabriel'

Heads Up. Our MLS, which I am a past Director of, did not 'disallow' Range Pricing.

They simply changed the way we use this marketing technique. We are now obligated (in theory) to place high price as list price.

That defeats the whole purpose of Range Pricing a listing.

What you have stated here is exactly what I MLS has disallowed. No bottom of the Range in 'list price'.

TLW "The Lovely Wife"...A Former Director Of MFRMLS...ROAR!

Hi Garbiel, When I list a property using RPing, my listing agreement always has the low price as the list price price and the high price as a full price offer. So in reality I'm already covered. So really what the MLS is doing is forcing me to use the high price as the list price when it is not according to my listing agreement. Then to further complicate matters they slipped in this little diddy:

ARTICLE 6 - REFUSAL TO SELL

If the seller of any listed property filed with MFRMLS refuses to accept a written offer satisfying the terms and conditions stated in the listing, such fact should be transmitted immediately to MFRMLS and to all Participants by withdrawing the listing.

Just to clarify, MFRMLS has not prohibited RPing just rendered it useless. Whether or not they will enforce the ruling is yet to be seen.

Thanks Broker Bryant (my husband) I didn't feel like writing all of that. Too lazy. That is waaaay too much like 'work'. :) TLW...ROAR!

Thanks Gabriel, my thoughts exactly!

BB & TLW, thanks for calling me on that - I adjusted the post to better reflect the reality of what the MFRMLS did - render range pricing ineffective, not disallow it entirely. This, then, is still intended to get around that specific issue, because a high end of the range does not exist in a best offer situation, only a starting point/low end. I don't believe the MLS can force a listing to be withdrawn under this scenario because the listing will clearly state that a listing price offer is not considered a full price offer. Furthermore, I also don't think there is much likelihood that a rash of low-end (i.e. listing price) offers come in without at least a mortgage contingency or inspection contingency, etc. anyway, and if there is anything other than a pure, contingency free, all cash offer I don't believe it qualifies as "satisfying the terms and conditions stated in the listing".

Hi Gabriel, I'm not quite sure what the MLS was smoking the day they came up with Article 6. There's not a chance in heck that that would stand up in a court of law. BTW I am still doing business the same old way. Our MLS is way to busy making rules to have time to enforce them:)

How about remarks indicating Seller will review all offers submitted between activation and some future date and respond at that time. Get a little bidding going?!

I like it Tony, I just don't think the true auction process can work because some of those offers are going to need answers quickly or they move on to another home. It also binds the seller with a time certain that they may create a legal obligation to accept an offer, which is absolutely not desireable (see Bryant's note above about Article 6 in his local MLS).

Gabriel...Ahhh. Much better. BB is right. The new guidelines will not be enforced. Why?

This particular MLS Board is quite busy shining up their designation pins. That's sarcasm. :)

We defy what our MLS has done. This happens every time the market swings over to Buyers. The guideline changes are 'normally' the result of other Realtors/Brokers complaining about RP listings. They are complaining because RP's sell in a Buyer's Market. So rather than try something new our competitors complain. So, how sad is that anyway? Pretty sad. Geez, quit your whining and go sell a house.

Sometimes the MFRMLS just changes a guideline to put a stop to the complaining. They need time to shine those pins. Lord knows they wouldn't want to call a special meeting on this issue. It would take attention away from the pins. :) more sarcasm.

We all know Article 6 won't even make it to a courtroom. They'll change it back after they have checked with their Attorney. We know that to be a fact. :)

Okay. I had a chance to vent a little up there. Thanks. Should I tell you this is a great post and that perhaps I am a little off topic? :)

TLW...ROAR!

TLW, I love it, and you are on topic...well, close enough for me! Just keep on keeping on, business as usual, i.e. do what your ethical and fiduciary obligations are to your CLIENTS, not the fools at the MLS! On a similar note, we had the total marketing time field removed for a while earlier this year (probably because listing agents were complaining that all of us buyers' agents knew how old their listings were). That lasted about two months before they reversed that.

DEC

2006

Gabriel.. I appreciate your creative thinking on how to 'keep going' if they shut down your RPing.. nice job. I must say I dont agree with the Realtor's listing at $1. Your new way of listing them gives them a bracket or 'neighborhood' of where they should be offering at, like RPing. I am hoping to try out the RPing idea with an understanding client. we'll see.

Gabriel...

You have pointed out yet another hot spot with me. The Guidelines that are changed only to be changed back in the matter of weeks. So, why does this happen?

This is 'normally' the result of what I refer to as a band aid fix. The field disappearance game is done to hold everyone over until the MLS Directors can investigate a situation that has come to their attention via whining. :)

The MLS's have a tendency to stop everything and re-group. What bothers me about this re-grouping is that the MLS's fail to see the bigger picture and the effect of their actions. Well, that's just out right wrong. The problems should not be fixed with a band aid. Everything should be left in place until an investigation is finalized and a vote by the Directors has taken place. :) Realtors should never be placed in a flip flop position by an MLS BOD. So, what if some folks are whining. Let them whine. :)

We will continue to act in the best interest of our customers. It's just the way we are. The MLS does not get to take our customer's best interest away from them. :) It is not their (MLS's) place to dictate 'what is best'. That is not what the MLS's are for. Maybe someday the MLS's will put their pins down and figure out that some things are more important than shining a pin. :)

Now that I have said all this you should probably know that I raised holy h**l when I was one of MFRMLS Directors. :) I was a bit of a trouble maker but my position on these issues helped to change the way MFRMLS operates. :) It really is too bad that some of us 'old timers' are not still sitting on the board. I could have a lot of fun talking to the other Directors about all their shiny pins. Waaay sarcasm there. :)

TLW...ROAR!

Do you think they'd take you back now TLW?!

No Way Man! They don't want to deal with me! :) TLW...ROAR!

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