“How do you go about setting a list price? Does pricing below market rate always cause a bidding war, or can that backfire?”
Pricing a listing is very much an art, not a science. It requires careful analysis of many factors of the property and the market. Local practice for the past several decades has been to price below market value, hoping that the low price combined with broad public exposure will inspire interest, resulting in multiple offers and a sales price both higher than list, and also higher than if the property were listed at market value.  Overbidding varies both by City and by neighborhood within each City, with Berkeley leading the practice and commanding prices on average 10-15% over list price. But one needn’t venture very far afield to find communities where sales prices routinely stay close to list, or fall below. It’s primarily within the core of the East Bay and within San Francisco that pricing below market value is a key part of the marketing strategy of most listings, making pricing all the trickier to get right.
Of course receiving numerous offers, or creating a “bidding war†is not the goal, but actually having a strong offer close escrow. In my 23-year career, strategic pricing has indeed resulted in sales above list price for 100% of my listings, during all markets, strong as well as challenged! I could not achieve that remarkable record without staying well-informed of what’s going on in the immediate neighborhood of each listing, and observing first-hand how similar properties have been priced and presented, and how they were received.
Here are what I consider the key considerations for pricing a listing:
- Needs and goals of the seller
- Condition of the property
- Location, and its relative desirability
- Recent sales activity level in the neighborhood
- Recent nearby sales prices
- Time of year
- Approach and reputation of the agent: an important and under-appreciated factor
- General pricing approach in the area
- Overall economic environment
I begin by making sure the goals of the sellers are clear, and do a “reality check†to see if they are likely to be obtainable. Many sellers simply want the highest net price possible. For others time is of the essence and closing quickly is the highest priority. Sellers’ specific goals influence how much I counsel them to invest in preparation in advance of marketing.
Of course I look at relevant recent sales, as well as any possible changes to the market. Condition of the property, the degree of updating, curb appeal and views all influence value. Location, including walkability, and supply of similar and nearby properties during marketing are also factors in how a listing is priced, and received. If the property is in a neighborhood where most recent sales have been fully updated, that sets the standard. Does the property have some unusual aspect? Effectively marketing that feature to the appropriate audience is an opportunity for some specialized outreach.
Time of year also makes a difference to pricing strategy. The early spring market is usually characterized by exceptionally low inventory and pent-up demand, resulting in the greatest flexibility in pricing. Early spring list prices can seem especially low, but result in the highest over-bidding, as well as the highest average prices of the year. An equivalent property brought on at any other time may not receive the same level of enthusiasm, nor multiple offers. Not surprisingly, many sellers look at the results achieved during the spring market and hope for those at other times of year too. But except for those first months of the year, pricing requires great precision, and all other aspects of preparation and marketing need to be in top form.
Clearly there is risk that pricing low may not always result in multiple offers, for any number of reasons, from global to very local. A disturbing economic or political event can impact consumer confidence. Or simply another listing appearing nearby at a more competitive price can derail a listing’s best plans. Sometimes there appears to be early interest, and yet when the scheduled offer day arrives, no offers appear. In other cases just patience is needed, or perhaps more dramatic action will be required, such as a new price or modified look. During this autumn market I’m getting messages every day, sometimes several a day, announcing price reductions, price drops or “adjustments,†an action I hope is never required for one of my listings!
A key role for me as a listing agent is to counsel sellers thoroughly in advance about all possible outcomes, including either one or zero offers appearing on the scheduled offer date. Some agents are willing to list properties at prices that the seller will not accept, in an attempt to stimulate activity. I am not, as I find that rarely to be in my seller’s best interest. Instead I prefer to do everything in my power to produce the strongest outcome. That includes having a candid conversation with the seller before marketing, and agree in advance on a Plan B. I’d like to think that such careful and strategic planning has made all of my listings sell with Plan A: above list and quickly!