Tuesday, February 24th, 2009 at 7:26 AM
Say No to Value-Range Pricing
It looks like PruCa has a new president and CEO. He was featured in Sunday’s UT touting the benefits of value-range marketing:
From coast to coast, range pricing has changed the face of real estate. The approach, an alternative to the traditional way homes are bought and sold, markets properties within price ranges, rather than at set prices.
One advantage of range pricing is that it allows interested buyers to focus their negotiations within a minimum and maximum price span, rather than trying to guess the price at which the owner will sell.
Another benefit of range pricing is that the seller promises to entertain any offer within the set price range. That assurance opens the door to negotiations and, most likely, a transaction. With a fixed-price listing, the seller is free to refuse any offer, and negotiations may not even begin.
Range pricing gives sellers the privilege of determining their home’s market value. It also enables them to obtain the maximum price possible while keeping their property competitive in the market.
Homes listed with range pricing routinely sell in a fraction of the time it normally takes to sell traditionally priced homes.
For real estate professionals, range pricing eliminates the listing agent’s two greatest fears: underpricing, which results in the sellers leaving money on the table; and overpricing, which attracts the wrong buyers to the home.
Guys who are president and CEO of a big real estate firm aren’t on the street every day selling homes – they are administrative folks, running the corporation from the ivory tower. So I won’t blame him for waxing on about their little niche without knowing exactly how the buyers feel about range-pricing.
But I can tell you that buyer view range-pricing with great skepticism, and if they do make an offer, they look at the lower price, and want to go down from there.
A review of the homes in Carlsbad and Encinitas:
Currently pending:
196 not using range-pricing, 77 days on market
32 on range-pricing, averaging 85 days on market
Closed since January 1:
120 not using range-pricing, averaging 73 days on market and 96% SP:LP
28 on range pricing, averaging 78 days on market and 93% SP:LP
Of the 28 that closed, ONLY SEVEN SOLD ABOVE the original low end of the range.
While the range-pricing might have appeared to be beneficial to sellers in a hot, rising market, today it is one more hurdle thrown in the path. Today buyers are looking for any reason NOT to buy, and range-pricing gives them another one.
It should occur to those touting the range-pricing that if some buyers are turned off by range-pricing, that is bad for the sellers!
Check the stats, it isn’t producing the benefit you think it is.
75% of recent solds closed below the original bottom of the range!
Range-pricing is the lazy man’s way to pricing a home. Don’t risk alienating any buyers, hire an agent who can pinpoint the value.
Posted on Tuesday, February 24th, 2009 at 7:26 AM in Listing Agent Practices, Psycho-babble | 43 Comments » | 
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Jim
Good points and use of data as always. I suspect we will see in this decade may old “truths” (e.g. price ranging, e.g. people will keep paying a mortgage if they can even if they are under water) disappear and the traditional analysts and stataticians wondering what happened.
The economist had an article saying Obama’s current plan is based in part on the belief that people underwater will keep paying the mortgage and they were influenced by a study in MA showing this happened in the past. The O man and his experts, just like the CEO of Pru, are blinded by old truths when they should be digging into the details at the street level (as you do) to really understand what is going on, what is the mentality and what is driving people’s decisions.
And I agree if I look at a price range, in this market the bottom price is the most I will pay. And after reading an earlier comment of yours, when I see somthing priced XXX,999 — I know not to bother as it says “I am a seller living in denial.”
Bob | February 24th, 2009 at 7:36 am“The economist had an article saying Obama’s current plan is based in part on the belief that people underwater will keep paying the mortgage”
That’s one way to look at it, but another is that the plan is based on only helping out those who will because they’re the only ones who should be helped.
And yes, of course, the only price in a value range that matters when deciding whether to make an offer and how much to offer is the lower one. That was what I thought even during the boom.
GeneK | February 24th, 2009 at 7:46 amAnecdotal evidence – I don’t even look at the upper boundary.
Alex | February 24th, 2009 at 8:20 ammore video parody:
http://www.blinkx.com/video/mark-cuban-parodies-bernarke-paulson-the-bailout/MYCgfD7sQHziBHnyaZTOUg
(ht to RE)
Jim the Realtor | February 24th, 2009 at 8:23 amThis came over today from Countrywide/BofA – the feds had appropriated $4B last year for local governments to get into the flipping business. Looking forward to seeing how they do – it looks like they’ll get the first crack at buying the pre-listeds:
Countrywide has agreed to participate in The Neighborhood Stabilization Program (“NSP”) authorized under Title III of the Housing and Economic Recovery Act of 2008. The program is expected to launch in early March 2009 and will provide assistance to state and local governments in order to acquire and repair foreclosures that might otherwise become sources of abandonment and blight within their communities.
You are receiving this communication to inform you that Countrywide managed assets in both a listed and pre-listed status are eligible and may be sold to NSP recipients. Your assistance will be required to help facilitate property inspections and closings.
Jim the Realtor | February 24th, 2009 at 8:33 amHow is “range pricing” even supposed to work? I suppose it’s possible to use it as an ‘anchor number’ tactic by providing a high top of the range, but, as others have pointed out, I can’t interpret it as anything else than the bottom of the range being the asking price.
NateTG | February 24th, 2009 at 8:36 amMy take. In a rising market it allowed you to list your dream price. In SD in 2004 that meant you usually received it to.
I found it interesting that the seller would negotiate with any offer given within the range. That is so nice that if you bid above the low price they will be willing to negotiate with you.
lv renter | February 24th, 2009 at 8:40 amCompletely agree, range pricing is absurd.
Mozart | February 24th, 2009 at 8:48 amAgreed lv, in the heyday you’d put the lower-end price at the last comp, and the high-end number about 10% above. It gave the buyer permission to pay a lot more. Today, it’s the reverse.
The line,
Range pricing gives sellers the privilege of determining their home’s market value.
is the one that got me. It’s insulting to participants everywhere, and pure pandering to sellers, trying to trick them into listing with them because of the range.
Jim the Realtor | February 24th, 2009 at 8:49 amCheck-out housing tracker today. Big change.
http://www.housingtracker.net/asking-prices/san-diego-california
Mozart | February 24th, 2009 at 8:51 amAnd the national picture from housing tracker:
http://www.housingtracker.net/
First in, first out?
Mozart | February 24th, 2009 at 8:55 amNice Mozart.
The SD active inventory dropped by 1,853 properties (11.6%) in one week, but only 965 of them went pending.
Almost nine hundred cancelled (888)?
Jim the Realtor | February 24th, 2009 at 9:00 amRange pricing ONLY makes sense when the bubble is expanding at its fastest rate. It’s the seller saying, “We have this fairly ridiculous asking price of X, based on the comps, but things are going up so fast that we might as well throw X + 5% into the conversation.”
Otherwise, you give one number for your asking price, and you force the buyer to have the chutzpah to ask for something lower. If you go too high, then you scare them away, but there is no way anyone in their right mind will go for the high end on a range price unless they are in a bidding war. No other product you buy has “range pricing” and the reason is that it usually makes no sense from the seller’s perspective.
Blissful Ignoramus | February 24th, 2009 at 9:00 amI couldn’t agree more! As if market value could be changed just by slapping a range on the asking price. LOL. Like Alex, I don’t even see the range any more, just the lower number.
Jakob | February 24th, 2009 at 9:00 amMy favorite response in regards to range pricing.
How about as a buyer, I make a range price offer? Then only agree to pay the lower end of my range.
Whenever I see range pricing I consider the seller clueless. Those are the first ones I toss out.
KC | February 24th, 2009 at 9:02 amNote the volatility in those inventory numbers. This week’s number went down to just below the number for three weeks ago. The graph below is probably what you want to look at.
Blissful Ignoramus | February 24th, 2009 at 9:05 amHey Jim. Wasn’t VRP one of the first posts you ever did? Any chance you can dig up those comments from the good old days?
I said then, I do not look at value range properties. To me it indicates any combination of ignorance, inexperience, arrogance, incompetence or intransigence.
Rob Dawg | February 24th, 2009 at 9:12 am“The program is expected to launch in early March 2009 and will provide assistance to state and local governments in order to acquire and repair foreclosures that might otherwise become sources of abandonment and blight within their communities.”
If they are blighted and abandoned, the city should just start slapping fines on the banks (at a very rapid pace!) until the banks owe more in fines than it is worth. Then the city gets the house for “free” and can clean it up and flip it from a zero base.
Just like every other “remedy”, the gov’t should only step in at a zero cost basis to clean up other people’s mess
FreedomCM | February 24th, 2009 at 9:27 amJim- The only thing that counts are sales prices. Would inventory be down 5% without cancellations?
Mozart | February 24th, 2009 at 9:56 amJust anecdotally, I’m so used to ignoring the upper range I almost never notice what it is. The main reason here is I estimate a house price before looking at the list price. It helps that I’m comparing mostly similar units (townhouses in CV and smaller houses near the Junior High)
sdbri | February 24th, 2009 at 10:57 amWhat Rob said.
Best case is that buyers treat the low number as the “asking price”; worst case is that buyers ignore the listing altogether, because the seller is saying “don’t bother to offer less than my low end number”.
I believe my first comment ever on this blog (in ‘07?) was regarding VRP. (I was “ex-X Fan” or something like that.)
Smithers | February 24th, 2009 at 11:04 amAs a recent home buyer, I can state non-anecdotally that I only ever looked at the low number in the “range”. Everyone knows that house prices are negotiable, why even bother with putting a range on paper?
What’s next, range pricing on cars? lol
Kwaping | February 24th, 2009 at 11:09 amHmm, I’m not sure what “non-anecdotally” means. Strike that.
Kwaping | February 24th, 2009 at 11:10 amWhen I sold my last house(several years ago in an “up” market, the Realtor recommended using range pricing. Our target LP was placed in the middle of the range. Her argument was that the range (mostly low end) would assist in getting more offers submitted by getting those who had their sights on a lower priced home to make an offer. With an offer in hand, counter offers would be made in an attempt to pull them up to the targeted LP.
LC Jim | February 24th, 2009 at 11:11 amI don’t see this tactic having a benefit for the buyer, but may have benefit for a seller in an normalized market. Today, it makes no sense for anyone.
Value Range Pricing and the Priced to Sit Phenomenon
This is one of my more favorite entries. Any agent that uses it is an idiot.
Any owner who allows their agent to use it is an idiot too.
Chuck Ponzi | February 24th, 2009 at 12:12 pmI agree with LC Jim on the comment #24. VRP has advantages for the seller in a “normalized” market. I used to use it alot a few years back, even on my own properties. As a seller, it worked quite well–I would let the selling agents know not to bother sending an offer outside the lower price and that we expect the porperty to sell towards the middle of the range–Almost everytime it worked. Here is how I priced my own properties–Low price was the price I needed it to sell for and anything above that was just gravy. Now, in today’s market, I wouldn’t consider such pricing-Rightfully so, buyers seem to be focused on the lower end of the price ONLY.
Local Boy | February 24th, 2009 at 12:55 pmone one word, shady.
arizonadude | February 24th, 2009 at 2:48 pm“Range Pricing” is one of the most annoying aspects of California real estate salesmanship. It may have sold houses to rubes during the boom, but as they say “That was then, this is now.” If a property is Range Priced, I won’t even pickup the phone to call on it. And if I see a property with a stated price and call my realtor on it and he gives me the ” Well that is the ask, but they are taking bids” I say, ” Made any money this month?” and hang up.
Will Pierson | February 24th, 2009 at 2:51 pmVRP is a joke! It doesnt matter what kind of market we are in, sellers focus on the top number and buyers focus on the bottom number. VRP is strictly a tool to get a listing from an unrealistic seller.
BigWaveDave | February 24th, 2009 at 3:22 pm“Value range” can’t even be desribed as an aspect of California real estate. I bought and sold three houses in the 27 years I lived in the SF Bay area and never heard of it before starting to look in SD County. Is there anywhere else in the state besides here where it is used?
GeneK | February 24th, 2009 at 3:26 pmAn observation- the % closed without VRP should be high given that the majority of sales are now REOs. Banks do not go for this and are usually the low price leaders which creates actual sales close to LP. Prudential is big with the VRP and ends their price xxx,876
Just a Broker | February 24th, 2009 at 3:47 pmVRP. It’s really, when you think about it, the poster child product of the used home salesperson*. Little else so succinctly sums up the buy at any cost for any reason mania that realtors built, fed and, to this very day, continue to pretend is reality.
It’s why used home sales, as a profession for the masses, will go away. Of course there will be some people who represent some buyers or seller for some transactions, but the idea that one needs to submit to the ministrations of the vast majority of these hacks is ridiculous.
I encourage PruCa to continue to push VRP as a viable, helpful and sensible strategy. I think it will only hasten the time when whatever the ceo of pruca has to cough up will be even less relevant and mostly unreported.
Of course, there are exceptions. Yes, I’m to/about JTR.
ice weasel | February 24th, 2009 at 4:35 pmPru ends their prices with 876? Do others pick certain numbers?
I’ve always — even back in the boom – totally laughed at that range crap. I ignored BOTH numbers and always just bid what I think is the right price, even it it’s 50% below the offer. Ask prices don’t matter at all. At all. Ever.
Aztec | February 24th, 2009 at 6:43 pmWhen I see a range of pricing I look only at the lowest price and start calculating backward. What is that other number except fantasy?
oc bear | February 24th, 2009 at 7:33 pmWe’re having a San Diego Tea Party:
GameAgent | February 24th, 2009 at 7:50 pmhttp://freerepublic.com/focus/f-news/2192427/posts
I’m willing to buy a property somewhere between $0 and the published price.
No_Such_Reality | February 24th, 2009 at 8:05 pmI agree that as the buyer, range pricing is not helpful, except to interpret that seller’s mindset.
I think many realtors, who are not assured enough to convince their clients of their homes current value, use range-pricing to ease their clients into the “futureshock” world many wannabe-sellers now find themselves in.
Many current sellers bought during the “Buy in now or get priced out forever!” mania. This is their paradigm. They truly never believed their home in SD area could go down. After some time, as they sit with their unsold home–even with that “low end” of the range, the reality can sink back in –not always but sometimes.
I think it’s a tool for getting a stubborn, unrealistic client to “come to the market” without letting them “learn” over time with your competitor.
Can it be a time waster for the realtor? Will the market deteriorate as the client “comes to the light”? Absolutely. But might you still get the client and his/her home sold in the end? Maybe. Like I said. Depends upon the client and the realtor.
shoppingaround | February 24th, 2009 at 10:05 pmTotally agree with shoppingaround – in a declining market as we have today, it gets the seller used to seeing in black and white the price (low end of the range) that s/he will likely end up getting.
It is a mind-game, but it is often successful.
Those of you who don’t like it – don’t use it when you sell your house.
The Good Life | February 25th, 2009 at 7:15 amI came from Silicon Valley and when I saw VRP for the first time in SD I didn’t know what to think. It just didn’t make sense. I fixated on the low end price every time, but since the market was booming I was outbid and my Realtard didn’t even want to submit some offers below the range. The majority homes I was outbid, are now in pre/foreclosure/REO. And you wonder why my Realtard doesn’t call me back. Sine virtually all listings were VRP, that made it OK. I think it was a combination of the booming market and laziness of some Realtards.
Anonymous | February 25th, 2009 at 9:04 amI love this topic. It gets the bubble blog mob’s collective blood flowing. Jim, I think you oughta touch on this once a quarter!
The whole concept is just moronic. Even the name, “Value Range Pricing,” is absurd. Can’t you just picture some idiotic realtor pulling this phrase out of his/her ass and thinking it’s ingenious? Then their boss probably stole it after a conference call with a bunch of other realtors while everyone else is patting each other on the back for coming up with a great marketing strategy.
The first thought that comes to mind is, “who in the world would want to do business with these morons?” Then I realize it’s not a rhetorical question. The answer is “lots of other morons” – which leaves us with this ridiculous housing bubble.
What’s even more pathetic is now realty companies have an opportunity to reinvent themselves by marketing to intelligence and a new set of rules, and here’s the CEO of PruCa flying his plane right into the same mountain of idiocy everyone’s already crashed into.
The Blur | February 25th, 2009 at 9:43 am“I think it’s a tool for getting a stubborn, unrealistic client to “come to the market” without letting them “learn” over time with your competitor.”
So it’s really a measurement of the gap in thinking between seller and realtor…high value is what the delusional seller thinks the house should bring; low is what the realtor thinks the house might actually have a snowball’s chance in Hell of selling for.
GeneK | February 25th, 2009 at 11:42 amAbsolutely, GeneK. Not that I think it’s a good or bad thing. Just one of the tools some people use.
Might be interesting to see if Realtors using this “tool” have increased the number of their listings over competitors who don’t. And the overall fallout rate of such listings. I’d bet that the bottom line is that it gives the brokerage an edge in the overall market, because it helps them bring along a client they might have lost if they “held firm” to strict reality upfront.
shoppingaround | February 25th, 2009 at 6:54 pmVRP or Range Pricing means this to a buyer:
1. Seller still thinks the market is going up.
2. Seller’s bottom of range is higher than assessor
3. Seller’s house has some bad problems.
4. Seller is looking for a large profit just for living in the house a couple years.
5. Seller is dreaming, and the bottom of the range is almost always 10 – 20% above real comps.
6. Seller’s agent doesn’t mind making buyers angry.
7. Seller and agent thinks all buyers are stupid.
The only scam in listing that is more of a turn off to a serious buyer is “Short Sale”. Sure, everyone starts off thinking “oh wow! look what I can get for so little!!”. Then the agent tries to explain a short sale, but hey, the buyers have to look, and look before they learn how a short sale usually won’t do the trick.
Range pricing also spams the MLS, because the house keeps appearing in the lists that the buyer sees. Once a buyer doesn’t want to see a house, it is annoying to get page after page of that house because it is in a range of prices.
Range pricing is a total insult to a buyer.
If you are selling, price for the market today.
SayNoToRangePricing VRP | July 27th, 2009 at 7:51 pm