Faulkner: Ask for less, get more

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Pricing a home for sale should be done thoughtfully.

Various pricing strategies work well. However, in a seller’s market, employing a counter-intuitive pricing strategy can be advantageous.

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Being raised on a farm, I noticed a similarity between the behavior of cattle and people.

When we would put out fresh hay, there would be a little stampede as the cattle rush to get their rightful share and more, if possible.

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The same can be said for people when they see a home that they perceive to be of great value.

There can be a flurry of activity in the first few days of being listed, as many will rush to see the house. And they rush because it appears to have a better price and, therefore, better perceived value than comparable homes in the neighborhood.

And that better price can be as little as $10,000 to $15,000 on a $400,000 home.

When I discuss pricing with clients, I will offer an optional strategy. That is to price the house at what we feel the actual sale price will be. This strategy can help the home stand out among the competition and attract multiple offers.

Some buyers will write thousands and sometimes tens of thousands of dollars above asking. The buyers that typically do have lost out on bids on two to three or more homes and are under a time crunch to buy a home.

And this strategy can also significantly reduce days on the market and inconvenience to sellers. You might be out of your home for much of the weekend, but hopefully, you have a great offer you accept on Sunday evening.

When employing the underpricing strategy, it should also be accompanied by a strong marketing campaign that can be fully implemented simultaneously. Blasting the listing to the home’s best demographic of buyers all at once can sometimes create a flurry of showings. I have also found that timing the broadcast for a Thursday or Friday maximizes the chances of attracting multiple offers.

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There is, of course, a risk that the home will not attract multiple offers. And the one offer you can get is from a buyer who wants to negotiate an already attractive price. In these situations, the seller depends on the negotiation skills of their realtor to protect and support the value and seal the deal.

If this is done well by your listing realtor, the home’s actual value will be obvious, and the buyer is likely to proceed with their purchase even at the list price.

This pricing strategy can also be used successfully in a falling market. To me, this is the best pricing strategy when prices are declining.

In Edmonton in the latter half of 2007 and all of 2008, single-family homes lost 20 per cent of value during the world financial collapse as prices didn’t bottom out until February of 2009. I witnessed many homes that were listed for a year or more. The seller or their realtor was committed to getting a good price and minimizing the seller’s loss.

Unfortunately, that increased the risk that there would be no offers, and the seller would simply follow the market all the way to the bottom and still not sell.

In a falling market, it is often best to rip the Band-Aid off quickly, lead the price down, and sell quickly in a “stop loss” strategy.

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There are, however, situations where I would not recommend this pricing strategy. Those situations would include homes that are quite unique and may only appeal to a small group of buyers. Pricing them higher than others in the neighborhood can be the best strategy for sufficiently unique homes.

These listings can sometimes sit for a while. If the seller is not under a time crunch to sell, then this would be a strategy that I would recommend that they consider.

The reason for that strategy is that the seller wants to find a buyer who sees the full value of their unique home and is therefore willing to pay more. Unique homes often have unique buyers, and they don’t come around every day.

In this case, patience could be the winning strategy.

Knowing the market conditions and choosing the right pricing strategy can be a great advantage and lead to a highly desirable outcome for sellers.

Dennis Faulkner works as a realtor at Sweetly Real Estate. He can be contacted to answer your real estate questions at hello@simplyrealestate.ca

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