What's up with those Value Ranges?

What’s up with those value ranges?

I received an e-mail from a reader yesterday in which I was once again asked to unlock the mysteries of Value Range Pricing. Seller will entertain offers between $535,000 and $595,000. Why would anyone ever offer anything more than the bottom of the range? It’s a good question, and today, people rarely do.

We have talked about value ranges in the past. (“Haven’t we talked about everything in the past?” she asks rhetorically.) And, while I have generally been known to trumpet the virtues of range pricing, changing market dynamics have caused us to reevaluate our position.

The best explanation of value range pricing I have ever seen is still this post written by Broker Bryant. Back in March of last year, I said:

 

There is not a single market value for any given home, but a range of value, as each would-be buyer is going to perceive value to a varying degree. One person may be willing to pay a premium for your Koi pond or proximity to the neighborhood park while another may consider little personal value in these things. Our responsibility as agents is to find the guy who actually covets most those features which your home has to offer.

This range of value concept is why Value Range (VR) pricing can be such a powerful tool for maximizing a seller’s chance of success…

  • VR pricing establishes a range within the seller is willing to negotiate.
  • A proper range will include a low number lower than the market’s perception of value and a high number higher, thus giving both parties an opportunity to negotiate their way to a palatable price.
  • VR pricing benefits the seller by providing a wide berth within which to maneuver. The home will be exposed to a larger potential buyer pool, and the likelihood of finding the one buyer who values the home most is increased.
  • VR pricing benefits the buyer by exposing them to a property they might not have otherwise seen and by giving them the confidence to submit an offer anywhere within the range knowing that they won’t be thrown to the curb. This is because the seller is obligated to “respond” to any offer written in the range; that response can be an acceptance or a counter offer, but it can not be an outright rejection.

Fast forward to last August where I spoke of how I was rethinking my position in favor of value range pricing:

We used to say, where value range pricing is concerned, sellers see the top, buyers see the bottom and agents see the middle. What I was really interested in this morning was whether or not this tired mantra still holds true in a market of deal-seeking, emboldened, buyers, buyers who are all at once fearful of the market yet fearless when it comes to submitting an offer.

Of the 25 value range-priced sales in the past 30 days, just over 40% of these sold below the low end of the range. Three others sold at the bottom. As an agent who uses value range pricing more often than not, my only surprise was that sold-below-bottom cases were not greater in number, yet I think this is a trend that will continue until our market stabilizes… It seems that now, sellers see the middle, agents see the bottom, and buyers see the bottom as “full price”.

Today, I find that last entry somewhat prophetic. We still find ourselves in situations where value range pricing makes sense, but these situations are far fewer. Sometimes, a truly unique home will beg the use of a value range price. Maybe the home is in fact significantly superior to recently sold homes in the neighborhood. The higher end of the range may, in these cases, be closer to true market value, but you must first be able to get the buyer inside so that you can prove it. Thus, a lower number at the bottom. Now, we often find ourselves using range pricing as a way to settle a bet. If the seller’s perception of market value is dramatically different from our own, a value range helps everyone sleep nights, with the high end appeasing the seller and low end helping to ensure that the home is at least shown.

Ultimately, regardless of pricing structure, the buyers are the market, and they are going to determine value. The primary goal with any pricing structure is to get them in the door.

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