Pricing a home means weighing a number of factors to arrive at the best price. These include the home’s estimated value, comps in the area, time of year, a Comparative Market Analysis (CMA), price banding, interest rates, and inventory. But what if your client wants to sell the home fast? Should you do a deep discount and start offering to cover closing costs and free warranties? You’d be surprised to learn that discounting the home is the last thing you want to do when trying to sell a home in a hurry.
It’s counter-intuitive, but a study done in 2013 by the Journal of Economic Behavior and Organization found that when homes were priced 10 to 20 percent higher than comparable properties, they sold for slightly more. The study, which looked at 14,000 real estate transactions with an average sale price of $234,000, went on to show that homes sold between 0.05 to 0.07 percent higher for every 10 percent increase in asking price. On the opposite end, when a home was priced 10 to 20 percent lower that comps, the expected price also dropped.
So how does marking a home up help it sell faster? Wouldn’t a home priced cheaper go faster? Not when you consider something called perceived value. When you go into a store and see two very similar items for sale, but one costs twice as much, you assume that the higher priced item is higher quality. Moreover, you are naturally inclined to stop and try to figure out why one costs so much more than the other. It’s true for items in a department store just as much as it is for homes. When a buyer comes across a home that is higher priced than a similar home in the area, they perceive that it is somehow better or in higher demand than its similar counterparts.
The results can help push the sale by:
Enticing buyers with higher budgets: These are people who wouldn’t normally be attracted to a lower price bracket. While the price of the home is higher than the comps, it’s lower than what this type of buyer is looking for, causing them to think that they have stumbled on a steal.
Increase interest: A higher priced home may cause potential buyers to stop and inquire as to why this house is priced higher than the comps. Essentially, it catches their eye in a crowd of similar homes and forces them to find out more. In doing so, they may be sold on the homes best selling points.
High bids: A home that has been priced just slightly higher than comps will start with higher bids, which is a nice side effect of pricing the home higher in an effort to sell it faster.
Have you witnessed perceived value at work with your transactions? Tell us about it in the comments below!