(RANGE) PRICING: Listing a range instead of a fixed sales amount can spur interest and get real estate bargaining off dead center
BY SUZETTE HACKNEY
FREE PRESS REAL ESTATE WRITER
July 23,
In a market flooded with homes that stay unsold for months and sometimes years, some weary metro Detroit sellers are trying to entice buyers by listing their houses with a price range instead of a fixed amount.
Called "range pricing" or "value range marketing," the practice gives potential buyers a range that the seller finds acceptable. The strategy assures potential buyers that the seller will at least seriously consider any written offer within the range by either accepting the bid or making a counter offer.
The process encourages open negotiations with a seller who will come down in price and a buyer who will go up. Compromises and amenities are frequently negotiated to reach a final price that is acceptable to both parties.
"The idea of range pricing is just another means and a way to get the larger public through the door of the home, which ultimately gets it more exposure," said Shana Sine Cameron, a Realtor with Sine & Monaghan Real Estate in Grosse Pointe Farms.
"If you're listing a house at $275,000 and there are buyers out there who only want to spend $250,000 -- so their agent is only showing them houses that cost no more than $265,000 -- they would never see your home. By having a range from $250,000 to $275,000, those buyers would then come through your home."
Range pricing started in Australia in the early 1990s and was brought to the United States, mostly in California, a few years later. In areas where homes are selling well and appreciating at a faster pace, the range can be anywhere from 12% to 15% from the pricing mid-point. Here in southeast Michigan, the spread is mostly 10% to 12%.
Not many metro Detroit real estate firms have subscribed to range pricing as a way of doing business, but some are easing in by marketing homes where the seller is willing to entertain all written offers.
Dean Sine, a broker at Sine & Monaghan, said he took a leadership position in bringing range pricing to metro Detroit in part because of the slow market and in part because he says it's the wave of the future in all markets. He learned the practice from brokers in California, where range pricing has been the most successful: Half of all sales there are done through the program, and the state's multiple listing services even register homes using range prices, something impossible here because not enough agencies use the program.
About half of his company's 250 current listings use range pricing, Sine said, and 65 to 75 such listings have been sold since February.
"Our showing activity has picked up since we started the program; we have had three times as many showings as most of our closest competitors," Sine said. "Range pricing helps us on both ends. It prepares the seller for the fact that they may not get full price. There's some give and take there because by giving buyers some numbers to work with, the comfort level is there."
Strategy pays off
Susan and Jonathan Hartz say they found the perfect buyers for their Grosse Pointe home using range pricing. The couple tried to sell their 3,700-square-foot, four-bedroom, three-bathroom home last August for $625,000 but had no luck and gave up after about a month. They listed it at a reduced price of $599,000 with a Realtor friend for about three months, but interested potential buyers couldn't come up with the money.
They took it off the market in January, but put it back on with a range price of $449,000 to $499,000 in March. They got an offer within the first week. The initial offer was at the bottom of the range at $449,000; the owners countered at $480,000 and the final agreement was for $465,000.
"You have nothing to lose since you don't have to take the offer, but in this market people are saying, 'Just come to me with some numbers and we'll try to make it work,' " Susan Hartz, 56, said. "In this economy, people are trying to get the sweetest deal they can, and no one is ashamed to say it."
Not everyone is sold on the concept. A paper published by a trio of economics academics last year in the Journal of Real Estate Finance and Economics found in a study of 5,852 residential homes sales in Texas that the houses took longer to sell using a range. In addition, they concluded that range pricing did not have a significant impact on final prices on homes sold during the time period covered by the study, January 1999 to December 2000.
"I think range pricing is a marketing strategy that may generate some interest for various realty companies that are looking for ways to be different than another company," said Marcus Allen, Florida Atlantic University real estate professor and a coauthor of the study. "It's just another marketing tool."
Still, Cameron said that for sellers and buyers range pricing is a way to do the heavy negotiating without the game playing. Even if an offer comes in on the low end of the range, it gets the potential buyer and seller talking.
"Even if they come in at the bottom end of the range, you sit down and try to negotiate," Cameron said. "Every house is different. When you sit down to negotiate a deal there is going to be concessions on both sides. You don't know what those compromises are going to be.
"An offer can come down to a washer and dryer, but sometimes it doesn't," she said. "Price is usually the driving factor, but after that there are occupancy issues, mortgage concessions, home warranties, decorating allowances. Those are all things that are negotiated and what affect the final outcome of the deal."
Generating traffic
Betsy and Thomas Ciconte have had their three-bedroom, 2 1/2 -bath Grosse Pointe Farms bungalow on the market for two months. The home has a second full kitchen in the basement, a rare find in older homes. But the couple have an 8-month old son, and they are thinking about adding to the family. After three years in the bungalow, they need more space.
They haven't received any offers on the home, with an asking range of $220,000 to $249,000, but they've shown the house to about 20 interested buyers.
Betsy Ciconte said they're not delusional about the market and know they're going to take a loss when selling the house, but she just wants to get potential buyers in the door.
"I hope it's working; we thought it would bring people in that might not come in," Betsy, 27, said. "We wanted to let buyers know that we're flexible. We've had a lot of traffic and activity.
"My girlfriend put her house on the market at the same time, and we have basically the same house but no one is coming to see hers and she's selling conventionally," she said. "I just want to leave my door open a little wider for people."
Tom Caulfield, a GMAC Mortgage loan officer, said he's noticed an increase in mortgage activity since a few metro Detroit real estate companies started range pricing this spring. He doesn't know if there is a direct correlation, but he said there has been increased buyer traffic.
"From a mortgage perspective, it allows the buyer to feel as though they're getting more house and the extras for their money," he said. "And they feel more in control because they got to choose what their offer would be instead of the seller choosing for them."
BY SUZETTE HACKNEY
FREE PRESS REAL ESTATE WRITER
July 23,
In a market flooded with homes that stay unsold for months and sometimes years, some weary metro Detroit sellers are trying to entice buyers by listing their houses with a price range instead of a fixed amount.
Called "range pricing" or "value range marketing," the practice gives potential buyers a range that the seller finds acceptable. The strategy assures potential buyers that the seller will at least seriously consider any written offer within the range by either accepting the bid or making a counter offer.
The process encourages open negotiations with a seller who will come down in price and a buyer who will go up. Compromises and amenities are frequently negotiated to reach a final price that is acceptable to both parties.
"The idea of range pricing is just another means and a way to get the larger public through the door of the home, which ultimately gets it more exposure," said Shana Sine Cameron, a Realtor with Sine & Monaghan Real Estate in Grosse Pointe Farms.
"If you're listing a house at $275,000 and there are buyers out there who only want to spend $250,000 -- so their agent is only showing them houses that cost no more than $265,000 -- they would never see your home. By having a range from $250,000 to $275,000, those buyers would then come through your home."
Range pricing started in Australia in the early 1990s and was brought to the United States, mostly in California, a few years later. In areas where homes are selling well and appreciating at a faster pace, the range can be anywhere from 12% to 15% from the pricing mid-point. Here in southeast Michigan, the spread is mostly 10% to 12%.
Not many metro Detroit real estate firms have subscribed to range pricing as a way of doing business, but some are easing in by marketing homes where the seller is willing to entertain all written offers.
Dean Sine, a broker at Sine & Monaghan, said he took a leadership position in bringing range pricing to metro Detroit in part because of the slow market and in part because he says it's the wave of the future in all markets. He learned the practice from brokers in California, where range pricing has been the most successful: Half of all sales there are done through the program, and the state's multiple listing services even register homes using range prices, something impossible here because not enough agencies use the program.
About half of his company's 250 current listings use range pricing, Sine said, and 65 to 75 such listings have been sold since February.
"Our showing activity has picked up since we started the program; we have had three times as many showings as most of our closest competitors," Sine said. "Range pricing helps us on both ends. It prepares the seller for the fact that they may not get full price. There's some give and take there because by giving buyers some numbers to work with, the comfort level is there."
Strategy pays off
Susan and Jonathan Hartz say they found the perfect buyers for their Grosse Pointe home using range pricing. The couple tried to sell their 3,700-square-foot, four-bedroom, three-bathroom home last August for $625,000 but had no luck and gave up after about a month. They listed it at a reduced price of $599,000 with a Realtor friend for about three months, but interested potential buyers couldn't come up with the money.
They took it off the market in January, but put it back on with a range price of $449,000 to $499,000 in March. They got an offer within the first week. The initial offer was at the bottom of the range at $449,000; the owners countered at $480,000 and the final agreement was for $465,000.
"You have nothing to lose since you don't have to take the offer, but in this market people are saying, 'Just come to me with some numbers and we'll try to make it work,' " Susan Hartz, 56, said. "In this economy, people are trying to get the sweetest deal they can, and no one is ashamed to say it."
Not everyone is sold on the concept. A paper published by a trio of economics academics last year in the Journal of Real Estate Finance and Economics found in a study of 5,852 residential homes sales in Texas that the houses took longer to sell using a range. In addition, they concluded that range pricing did not have a significant impact on final prices on homes sold during the time period covered by the study, January 1999 to December 2000.
"I think range pricing is a marketing strategy that may generate some interest for various realty companies that are looking for ways to be different than another company," said Marcus Allen, Florida Atlantic University real estate professor and a coauthor of the study. "It's just another marketing tool."
Still, Cameron said that for sellers and buyers range pricing is a way to do the heavy negotiating without the game playing. Even if an offer comes in on the low end of the range, it gets the potential buyer and seller talking.
"Even if they come in at the bottom end of the range, you sit down and try to negotiate," Cameron said. "Every house is different. When you sit down to negotiate a deal there is going to be concessions on both sides. You don't know what those compromises are going to be.
"An offer can come down to a washer and dryer, but sometimes it doesn't," she said. "Price is usually the driving factor, but after that there are occupancy issues, mortgage concessions, home warranties, decorating allowances. Those are all things that are negotiated and what affect the final outcome of the deal."
Generating traffic
Betsy and Thomas Ciconte have had their three-bedroom, 2 1/2 -bath Grosse Pointe Farms bungalow on the market for two months. The home has a second full kitchen in the basement, a rare find in older homes. But the couple have an 8-month old son, and they are thinking about adding to the family. After three years in the bungalow, they need more space.
They haven't received any offers on the home, with an asking range of $220,000 to $249,000, but they've shown the house to about 20 interested buyers.
Betsy Ciconte said they're not delusional about the market and know they're going to take a loss when selling the house, but she just wants to get potential buyers in the door.
"I hope it's working; we thought it would bring people in that might not come in," Betsy, 27, said. "We wanted to let buyers know that we're flexible. We've had a lot of traffic and activity.
"My girlfriend put her house on the market at the same time, and we have basically the same house but no one is coming to see hers and she's selling conventionally," she said. "I just want to leave my door open a little wider for people."
Tom Caulfield, a GMAC Mortgage loan officer, said he's noticed an increase in mortgage activity since a few metro Detroit real estate companies started range pricing this spring. He doesn't know if there is a direct correlation, but he said there has been increased buyer traffic.
"From a mortgage perspective, it allows the buyer to feel as though they're getting more house and the extras for their money," he said. "And they feel more in control because they got to choose what their offer would be instead of the seller choosing for them."
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