That’s a great question. With the increase in buyers searching listings on their own, using the internet and other tools, care must be taken to understand how pricing impacts the visibility, and thus selling opportunities, of your property.
In the old days, when buyers had to rely on lawn signs, they typically would drive around neighborhoods looking for attractive houses. When they found one, they would call the listing agent and request the price. The listing agent would spin their best sales pitch before giving the price. After getting the price the prospective buyers would decide whether it was in their price range and if so, schedule a showing. In this scenario, the exact listing price is meaningless in attracting the buyer’s inquiry. Regardless of whether the house was priced at $299,999 or $399,000, the initial call was generated by the neighborhood and curb appeal. This system forced buyers to call on properties regardless of the listing price to get more information. This gave the real estate agent an opportunity to sell the features of the property before giving the price. It also exposed buyers to a wider price range because the only indication they had of the potential price of a home was the general market area.
The internet, however, has changed everything. Buyers can now search for properties based upon city, school system, bedrooms, bathrooms, architectural style, and a myriad of other criteria. Price, however, still remains the number two search parameter, second only to location. Because of this, you must price your home very carefully to ensure that it shows up in the greatest number of searches, and to the correct audience. I’ll explain what I mean by the “correct audience” a little later.
Let’s first look at the psychology of pricing. The conventional pricing wisdom says you should list an item’s selling price a dollar (or penny) below your price point. For example, $249,999 instead of $250,000, or $19.99 instead of $20.00. It’s true that psychologically $19.99 sounds cheaper than $20.00, but with the internet, we are dealing with computers, and they aren’t very forgiving when buyers enter search criteria. Let’s take a look at how this works and how it affects your listing.
Let’s assume that you are trying to sell a home, and you want to list it at $250,000. A typical real estate agent might suggest that you list it at $249,900 instead. The conventional wisdom is that $249,900 sounds less than $250,000. So, you list the home at $249,900. Let’s also assume that a home buyer we’ll call Mr. Smith is searching a website for homes in your city. Mr. Smith decides that he can spend up to $300,000. In reality, most home buyers overstate their upper limit. So our client, while stating that $300k is his limit, probably can’t or won’t go over $290,000, and in fact would be more comfortable around $260,000 - $270,000. When he enters his search criteria, he will be asked to enter a price range acceptable to him. Mr. Smith is most likely going to enter $250,000 - $300,000. Notice that your home missed the search. Had your home been priced at $250,000, not only would it have shown up, it would have been one of the least expensive homes in the result list, making it very attractive to Mr. Smith, indeed. Remember a little earlier when we talked about exposing your property to the “correct audience?” By pricing your home to show up at the lower end of Mr. Smith’s price range, you are exposing your listing to the correct audience.
Now you might be thinking “but my home will show up in all of the searches from $200,000 to $250,000. Isn’t that just as good?” Not really. Here’s why. Let’s assume that you priced your home at $249,900. Let’s also assume that Mr. Jones is looking for a home and enters his search criteria as $200,000 to $250,000. What is his true upper limit, the amount Mr. Jones is comforatable spending? It’s most likely somewhere in the $230k to $240k area. Since your home is at the very upper limit of his search range, and most likely more than he can realistically afford, your chances of a sale are greatly diminished. Your home will be the most expensive home in Mr. Jones' search results. Your home now has two battles to win. First, since it is one of the most expensive home in the list, it must be nicer than every other home. Second, your home must be compelling enough to stretch Mr. Jones into his very highest affordability range. Mr. Jones is the “wrong audience.”
So, as you can see, a slight price shift of just one or two hundred dollars can greatly affect your listing’s audience. Make sure that you and your agent take that into account when setting the listing price.
I’ll leave you with an insider’s tip. List your home at a round number and appear in BOTH price brackets to cover all of the bases. In the example above, the home seller should list the home at $250,000. Now the home will show up in both search ranges, exposing it to the widest audience.
