Pricing Your Home Right -- Don't Be Behind the Pricing Curve!

This post is intended to illustrate the value of pricing real estate, both land and homes according to market values and not by the wants or needs of the seller. To make my point, I have made the chart below.

In this illustration, the red line represents the market value of the property in question. The green line across the bottom represents the value necessary for a quick sale which is normally determined by a BPO often ordered by a lender for properties by foreclosure. A foreclosure is also known as a REO by lenders. As listing agents, we don't really like these prices, but we must be aware of them in order to price each of our listings properly. The shaded red area indicates a pricing region that is above market value. The shaded green area represents aggressive pricing.

The letters "A" thru "F" indicate five specific cases.

Case A shows a case where the listing was priced too high at the beginning. Typically, the listing runs for several days with no showings until the seller finally gives in and reduces the price. More time goes by with small reductions in price at intervals. Finally, after a long period of time passing, a buyer is finally found, but, being the savvy buyer as most are, the house finally sells at a price in the shaded green area (marked by "x") meaning it closed slightly below market value. In this case, the yield could have been even worse because so few potential buyers saw the house, the seller got desperate and took what he could get.

Case B shows a property that is priced right and priced to sell quickly. This pricing is typically what is done by lenders who have foreclosed. Lenders, and the agents who are well-connected to them, run BPOs (Broker Price Opinions) to determine these prices. Notice that this home sold quickly and at the asking price.

Cases C and D are similar to B, but in these cases, the sale took a little longer and the closing price was a little below the asking price.

Case E is an example of a home being priced right at the beginning, but staying on the market with no reductions. In this case, when the sale was finally made, it closed at a lower price anyway. Notice from the chart that if this house were reduced half-way through its time on the market, it would possibly have brought a higher price.

Case F is intended to show a seller who decides to wait to put his home on the market and who thinks it should be priced above market value. So the seller waits, but finally decides to get serious and put it on the market at a competitive price. This time the house sells pretty quickly, but at a price at the BPO level. Because of the declining market this seller "takes a beating" because he waited for the market to decline.

If sellers A and F had priced like examples B, C, and D, sellers A and F would have come out with better net closed prices and would have had their properties sold much sooner. Case A is the classic case of pricing "behind the curve." It should also be noted that homes priced in the green areas of the chart will be shown much more often than those in the red or "overpriced" regions of the chart.

I just added another case. Case G is intended to illustrate what can happen when the pricing is so low or the house such a popular one that several buyers are attracted to it. In this case, the price could be "bid up" with multiple offers, even to a point well above its real market value.

I work in Arizona, Yavapai County, in the Prescott Area. I know this strategy works in Prescott, but I think it is sound strategy anywhere you may be.