Unintentional Range Pricing

In analyzing the October 2006 data from some of the MLS areas of Colorado Springs, I found that our average Sale Price vs. List Price was 98.85%. What I found to be of particular interest was that the areas that had the fewest “sales” all had SP vs. LP over 100%.

Why would that happen? My guess is that we have run into the issue of “Unintentional Range Pricing.” Range pricing is not something that our area Realtors® practice, but there is always a “price range” that a house falls within. (What is Range Pricing?) So, let’s consider the following scenario (based on our local economy):

Cast:
Sella Notherhouse ~ Buyer’s Agent
Anita Housenow ~ Buyer
Liz Twithmee ~ Listing Agent
Ima Muvinsoon ~ Seller

Ms. Twithmee lists Mrs. Muvinsoon’s house and puts it in the MLS for $200,000. Although the market has slowed down in her neighborhood over the past few months, houses in her neighborhood and in her general condition have sold recently for anywhere from $195,000 to $203,000. There are a few homes currently active in her neighborhood priced at $198,500, $199,000, $202,000 and $205,000. Being priced at $200,000 will place her right in the middle and allow for plenty of showing activity, and hopefully a quick contract, as the Muvinsoon’s want to be moving soon and do not want to be on the market very long.

Mrs. Notherhouse takes Miss Housenow out, a couple weeks later, to look at homes in the same neighborhood that Mrs. Muvinsoon’s house is listed. She loves the house, and wants to put in an offer. Mrs. Notherhouse runs a CMA and tells her client that it looks like the home is priced well. Although Miss Housenow has great credit, she does not have much more than the requested earnest money, and would need her closing costs paid for. She had already spoken with her loan officer, and has a pre-qualification letter, up to $215,000, with closing costs totaling about $2,500.

Mrs. Notherhouse draws up an offer for a purchase price of $202,500, and requests that the seller pays Miss Housenow’s closing costs of $2,500. Since the seller will still net the same amount, and given that the home still appraises at value, this contract gets signed. The Sellers are happy to get the home sold quickly. They close in 30 days and everyone is happy.

In this case, the home sold for a little over 101% of list price, all due to unintentional range pricing. Which makes me think … would more homes sell in a quicker amount of time if Range Pricing were used more deliberately?
Posted By: Springs Realty Scoop – Colorado Springs Real Estate

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About Mariana

I am a Mom, Wife, Real Estate Agent Trainer and Mortgage Lender. Find me at http://www.marianawagner.com
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