How is the Listing Price of a Home Determined?

When a property is placed on the market for sale, that becomes an important point in time as it relates to marketing real estate.  The infancy of marketing real estate is a critical time because that’s when some of the best quality buyers come through the property.  There is “pent up demand” for new listings.  Naturally, home buyers wish to view a home new to the real estate market so not to “miss out”.

Marketing real estate entails many components to insure a successful sale for a seller.  Internet marketing and promotion are chief among them.  Yet, if I were to pick one element of marketing real estate and classify it as the most important, it wouldn’t be what you might think.

One of the harsh realities found in real estate is that 95% of marketing a home rests upon the list price, and, 5% represents everything else that is done to present and expose the home to the market.

“Can’t we start higher…?”

Many sellers will ask that question with the rationale that “We can always come down in price later, right?”.  On the surface of it, that makes sense.  Yet, when this question is carefully considered in the plain view of unintended consequences, that pricing strategy may be unsettling.  Let me explain and illustrate.

A properly trained and selflessly motivated real estate professional will want to sell your home for the highest possible price the market will support.  Yet, “the market” is influenced by fluid factors that include other houses which are placed on the market during the time your home is for sale.  Features, qualities, condition, location, school district, the tax rate and amount of taxes, utility of the property, neighbors, condition of the street and neighboring properties, how many houses are for sale in a specific neighborhood, price range, time of year, all these factors – and more – make up the influencing factors which constitute  “the market”.  This requires an expertly trained real estate professional’s ability to guide and lead.

Will your home receive showings even though it is “overpriced”?  It may.  Yet, your home may be shown for the wrong reason.  Let me explain and illustrate.

Have you heard of “The decoy effect”?  If you haven’t heard of it before now, you’ve certainly experienced it.  It is a popular pricing strategy for nearly every consumer product or service.  Nutribullet blenders are an easy way to illustrate this concept.  Look at the advertisement below.  There is a less expensive model available for $89.00 which boasts 900 watts of power and 5 piece accessories.  Yet, the more expensive model is priced at $149.00 with 1200 watts of power and 12 accessories.  Which model is the better priced option?  That may not be immediately apparent.  The more expensive model is not quite 35% more powerful, yet, costs nearly 70% more.  What can the added plastic accessories be worth?

Let’s consider these two models compared with a third model.  See the advertisement below.

The third option is priced at $125.00 and has 1000 watts and nine accessories.  For just $36.00 more than the least expensive option, you get four more accessories and 100 more watts of power.  However, if you spend just $24.00 above that, you get 3 more accessories plus 200 more watts.  Great buy, right?

In real estate sales, the concept of “asymmetric dominance” works in the opposite direction.  When a house is presented to the market that is “overpriced” (it may be the highest price of any home found in that price range and neighborhood), that home may be shown by real estate agents as a decoy to make another home for sale much more attractive from a price point of view.  Some real estate agents call this “the bumper” or “pinball” method. 

There are many dynamic elements of the real estate market which need qualified and careful consideration.  If you would an assessment of what your home might be worth in the market today, please feel welcome to contact me.