Even though inventory levels are slightly up, London continues to be entrenched in a Seller’s Market this spring. Many properties sell as soon as they come to market, often in multiple offers. Nevertheless, now more than ever, Sellers need to work with their Listing Agents to decide on a pricing strategy that will minimize the risk of leaving ‘money on the table’ when they sell.
Let’s have a look at three common pricing strategy options for a Seller’s Market:
- The ‘intentionally low’ list price: This is when the list price is set very low on purpose in the hope that the low price will attract multiple offers which will drive the price up. It works best in a hot Seller’s Market and when your home is the type that will appeal to a large number of Buyers based on its style, location and price.
- The ‘play it safe’ list price:This is when you list a little bit above what you think is the fair market value because, even though you have a pretty good idea of how much your home is worth, you want to leave some room to negotiate or hope a Buyer might want your home badly enough to pay you slightly more than its value.
- The ‘intentionally high’ list price:If your home is somewhat unique, making it difficult to estimate its market value, and you won’t be insulted if someone makes you an offer that’s substantially less than your list price, you might decide to set a high initial list price, to make sure you don’t undersell it.
As a Listing Agent, it is not up to me alone to decide which pricing strategy to adopt. I like to have a conversation with my Seller clients so that we can decide together on the best pricing strategy to use, after taking into consideration their personal circumstances and examining the risks and benefits associated with each strategy.
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Let’s have a look at some of the risks and benefits associated with the three pricing strategies mentioned above:
- The ‘intentionally low’ list price: First off, in order for this strategy to be effective the home has to have a very broad market appeal with a good chance of attracting multiple offers. Secondly, when most other similar homes are using this strategy, you’re almost forced to use it too because it’s what Buyers expect. If you list too high, Buyers may be reluctant to look at your home. In a balanced or Buyer’s Market I would not necessarily advise using this strategy because there’s never a guarantee you’ll get the multiple offers necessary to produce a sale price that’s at least as high as fair market value. In a Seller’s Market however, with the correct amount of exposure and good marketing it is often in my client’s best interests to use this strategy, because in a bidding war, ‘fear of loss’ is at its highest for Buyers and the likelihood of attracting a very high sale price will be good.
- The ‘play it safe’ list price: We might want to hold off on offers with this strategy, too, in case there are multiple buyers out there just to make sure we don’t leave any money on the table. However, if the home is listed too high above market value there is a risk that no offers come in. If this happens the one lone Buyer who was interested in making an offer might lose ‘consumer confidence’ when they see no one else was interested in bidding. As well, with no competition, the ‘fear of loss’ diminishes and the Buyer decides to bid low or walk away. When using this ‘play it safe’ list price strategy, instead of holding off offers, I often find, it a safer bet to begin advertising the property before it hits MLS and to ask for a ’24 hour’ irrevocable on all offers instead of holding off offers.
- The ‘intentionally high’ list price: I don’t particularly like this strategy because I find it to be misleading. Nevertheless it does have its place in certain circumstances. The best time to use this strategy is when a house is so unique that it’s almost impossible to determine fair market value. In this case we price it high to see how the market reacts and if it doesn’t sell we reduce the price. Understanding when to make the price correction is important too. The longer you leave the price too high, the more consumer confidence wanes.
What can Buyers learn from understanding these pricing strategies? Well, there is no doubt in my mind, that in a Seller’s market it is very helpful for Buyers to be able to recognize which pricing strategy the Seller is using. A Buyer Agent will help clients understand what a particular list price means and what the offer strategy should be. With this knowledge a Buyer can move forward confidently with their offer, even in a hot Seller’s Market.