Price Spreads on Listings — Why

[Doofrat]

Why do realtors use price spreads on their listings? You know “seller will entertain offers between … and …”
I thought the reason in a seller’s market was to try and incite a bidding war, but that is just an assumption, am I correct?
In a buyer’s market, why have a spread? Wouldn’t a buyer just go for the lowest price? Does the seller see what car the buyer drives up in and if it’s a Mercedes, he says no I can’t accept the lower price on the spread, you’ll need to cough up the higher end of the spread, sorry?!?

[anxvariety]

When I was taking my real estate classes in 2001 this was something that Prudential was just starting and they were calling it VRM or Value Range Marketing.. Kinda makes me sick to stomach thinking about it, but wait – almost anything about real estate agents does!

I think it’s designed to attract as much interest as possible..

I used to be suspicoius that it was used to manipulate price.. like say you end up buying half way between the value range of 250-300 or 275k.. you might feel like you got a deal given its lower than the top, but you were really just ripped off and paid 25k over market.

I’m sure some of the realtors here will chime in..

[davelj]

In the current market, you can just pretend the “-” and whatever number follows it aren’t there. The lowest price in the range is the price the seller is going for and anyone who pays above it is nuts. My guess is that in a year or so we won’t see any more of these silly ranges.

[an]

Personally, that’s exactly what I’m doing. I completely ignore the – $x. When I will be buying, if it happen that the house I like has a range, I will come in w/ an offer at least 5% bellow their lower price range and start negotiating from there.

[JES]

I laughed earlier today when I saw a spread of 675-750k. The first thing I would do right now is take the lower number and deduct 10%!

To echo what was already said, in a year we wont see this anymore…

[smfj]

I worked with a Prudential realtor when I toyed around (very briefly) with the idea of buying a couple of years ago, and her explanation was that the market moves so fast that to list something at a specific price did not take into account the day to day market fluctuation.

I think the real reason is to get buyers to see more properties. A buyer that decides he/she can afford $500-550k will be shown a house with a $549k-$600k “value range” (same goes for someone looking for $600k-650k). If low end buyer falls in love with the house, he/she can be convinced that the increase in their monthly payment will be negligable if they go ahead and bid above their “affordability”.

(Yes, I’ve experienced this tactic).

[sdappraiser]

Per MLS, 43 detached SFRs in San Diego have closed escrow in the last 2 days.

Of the 43, 20 were listed with no value range. Of the 20, 13 sold BELOW the list price. 2 sold AT list price and 5 sold ABOVE list price. Of the 5 that sold above list price, it appears the sales price was probably increased so the buyer could wrap in closing costs into the purchase price (seller paid concession, thus final net sales price was either list or below list).

23 were listed with a value range and all but 4 of these sold for a value greater than the low end of the value range.

What does this mean? Value range pricing WORKS for the seller. Even in a buyer’s market with decreasing sales activity, sellers were able to get MORE than the low end of their list price in over 80% of this sample set.

How many of the 20 sellers who chose to not use variable price range left money on the table? Most of them is my guess.

Most of you are so biased in your opinions you refuse to open your eyes and TRY to understand how the business really works.

[PD]

You are assuming that the variable sales would be listed at the low number if they weren’t variable. If you assume that the high or middle number in the value range is the amount they would have asked if there was no range, then it would work out similar or worse than the single number listings.

[an]

I agree with PD. If you have two identical house, one list range @ 500-550k, which the other list @ 530k and both sell for $520k, then this disprove that people who don’t use value range left money on the table. Only way you can prove that the one not using value range left money on the table is to find two nearly identical house and have one w/ value range selling for more than one w/out. Other than that, these statistic doesn’t mean much.

[anxvariety]

How many of the 20 sellers who chose to not use variable price range left money on the table? Most of them is my guess.

Sorry but I’d like to call bullshit.. house goes to the highest bidder.. If you list a 1mil house for 100k it will get bid up to market value.. do you really think that by putting a price out there you are setting a ceiling or a floor? Sorry god, but the market will determine that for you…

Most of you are so biased in your opinions you refuse to open your eyes and TRY to understand how the business really works.

I am bearish and notice the same thing.. fortunately the industry isn’t complicated.. Why do you think we have such a shortage of fast food employees?!

Sorry if this post is jackass.. too much caffeine. I did enjoy reading the first half of your post though.

[sdappraiser]

Asianautica, that scenario just doesn’t exist as no 2 properties are EXACTLY alike.

I posted because previous posters have implied the range value is a bogus sales tool and buyers should automatically discount the low end of the range when making an offer. Statistics show that this is not happening in the market place and in most instances units are selling at a higher price than the low end of the range.

Powayseller’s is the only case I’ve heard of where a seller has admited to using a listing range that included a value lower than what they actually wanted. I would say most typically motivated sellers will use a low end price, that at that point in time, is the absolute lowest they would consider.

From the 1000’s of transactions I analyze ever week, I can tell you that the majority of ‘low sales’ that stick out like a sore thumb are usually single price point listings. These are sales that show no other indication of being distressed. Many real estate agents just don’t know how to price a property.

This has been covered before:

http://piggington.com/the_dreaded_value_price_range

[salo_t]

At this stage I wouldn’t even worry about what someone would like to get for their home, those days are gone. Do a little research on rents for the area and figure out what your mortgage would cost compared to rents. Offer that amount and don’t budge. Sellers that can’t sell cheap will lose their homes eventually and the others that want to sell will fall in line. Don’t let realtors dictate a price, you decide what you want to spend and stick to it.

[PerryChase]

salo_t, I think that’s the way to go. The way I see it is if you get what you want at a great price, then super, if not, oh well… there’ll be better deals down the road.

But it takes some will-power to detach yourself emotionally from a purchase. Many wives fall in love with a house/neighborhood and pressure their husbands into buying. As realtors would tell you, emotions play a big part in homebuying — it’s a lifestyle that buyers can’t wait to attain.

[powayseller]

Very interesting… one question – you noted that the 5 homes selling above list price, no value range, had an increased price because of seller concessions. Could you run such a check for the 23 value ranges? Perhaps if you remove the value of the concessions, the 23 listed with a value range really sold for the low end of the range?

It just makes sense that it would. Why would a buyer offer more than the bottom end of the range? My two offers were the exact bottom number of the range.

[SD Realtor]

Perry you have to many useful insights… whenever you are ready to earn some money on the side call me up! hehehehhe…you are oh so correct about the emotional factors involved in a purchase or a sale.

SDAppraiser thanks for pointing out that the previous post. I remember putting it up there a few weeks ago. I agree with you that the there are strategic reasons behind the price range.

I put my posting up previously to try to root out the source of the value price range. At the time I thought it was prudential and by the postings in this post I think that may be true.

I think the key that we all seem to agree on is if you price your house correctly it will sell. If a value price range is going to be used I really do not understand a price range that is more then a few percent of the total. For instance a 675k-750k price range seems to be an excessive spread.

Anyways to each his own.

[Author]

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