Home Pricing Strategies: The Good,The Bad and the Ugly

Home sellers who are back in force across the Bay Area should all read what is possibly the most important selling tip ever .It is no mystery or rhetorical question that the one and only factor that can cause a property to sell for more (or less) than it should is the listing price.

No matter the condition of the property, its location or the API scores in the neighborhood, the listing price criteria always comes first to the buyers mind. Before home sellers put their property for sale, it is critical that they understand the different pricing strategies that Realtors apply to a home for sale.

All those strategies rest on the concept of the the Fair Market Value (aka FMV) of a home which is defined as "the estimate of the market value of a property, based on what a knowledgeable, willing, and unpressurized buyer would probably pay to a knowledgeable, willing, and unpressurized seller in the market".

Pricing Strategy #1: Listing the property under its fair market value

If your Realtor implements this strategy, you will most likely attract lots of inexperienced buyers and Real Estate Agents who are candid enough to believe that they have a chance to buy your property for less than what comparable properties sell in your neighborhood. You should get ready to be flooded with low ball offers. I usually call this option the "Rookie" strategy.

Your Agent will feel good because he or she will be presenting you lots of offers but they are losing sight of the fact that their one and only job is to to find the one home buyer who is best placed to close the deal without any major issues.

As an Agent myself, I do not want to receive too many offers. I am only interested in the ones that make sense and potentially one or two back-up home buyers.

Pricing Strategy # 2: Listing the property above its fair market value

This is what I call the "Emotional" strategy.

Home sellers see their property as a place where they poured lots of efforts, money and love. It is like looking at a child the way a mother does. As Realtors, we all have to deal with these situations one day or another.

In most cases, Real Estate Agents will accept to list the property over its FMV for a limited time and will drop the price to be in tune with the local real estate market.

The main problem with that strategy is that if you are not lucky enough to find a buyer before dropping the price, the upcoming potential buyers will most likely believe that the price for the property is negotiable.

Pricing Strategy # 3: Listing the property at fair market value

By now you have probably guessed that this is the way to go. This is what I call " Strategic Pricing".

It might sounds easy but it is not. Unlike the other two options, this strategy is based on facts only, not Realtors' or Sellers' emotions.

Here is how I make it work: first, I learn everything I can about the home of my clients, especially every defect that exists. I will then confer with my clients whether or not it makes sense to spend some money to fix the identified defects based on the expected return on investment. The next step is to put under a microscope every bit of information available on comparable properties for sale, not just prices or square footage, but how advertised features compare, positively or negatively, with ours.

The Fair Market Value price will flow naturally from this thorough analysis and above all will be difficult to get challenged by other Real Estate Agents.