May 19, 2006: The psychology of pricing homes for a quicker sale in the Phoenix real estate market
Here's a simple math problem to illustrate the difference between pricing a home for sale by gut feeling and pricing from experience: What is the difference between a sales price of $295,000 and $310,000.
If you answered, "15,000 extra dollars in my pocket," you're wrong.
The difference is that, at $310,000, your home will probably be shown to about half as many qualified buyers, compared with $295,000. It could take twice as long to sell, and it probably won't sell until you reduce the price.
Why? Because lenders tend to qualify buyers in round numbers, usually in units of $25,000. Buyers will tend to be clustered at $250,000, $275,000, $300,000, $325,000, etc., with virtually no one between those quantum boundaries.
The buyer you're looking for is qualified at $300,000, not $310,000. Their Realtor will cut off their search at $300,000, or $305,000 at the most. They won't even know your house is for sale. The home they buy will be very similar to yours, with the only significant difference being that it is priced where the buyers are.
So why not price the home one qualification tier higher, at, say, $320,000? Those buyers are looking at $325,000 homes. Yours will seem like a bargain, won't it?
You've seen an endless number of cartoons in which the mastermind of evil tricks the bumbling buyer into overpaying for some item. You have never once experienced this in real life, either as the bumbling buyer or the mastermind of evil. To the contrary, you and everyone you've ever known were pretty determined to get everything you were paying for. So why would you expect to live in a cartoon world now?
In reality, to buyers qualified at $325,000, your home will seem dowdy and small. It won't seem like a bargain, it will seem overpriced. It won't be seen by the buyers qualified to pay what it is actually worth - $295,000 - and it won't seem worth the money to buyers qualified to pay $325,000.
Greg Swann is the designated broker for BloodhoundRealty.com, a full-service Metropolitan Phoenix real estate brokerage. This article originally appeared in the West Valley regional sections of the Arizona Republic.
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