Woe is me! I am battling my second bout of the Martian Death Flu this season, no doubt thanks to my daughters, or as I like to call them, my little Petri dishes.
My youngest lab culture experiment, the girl who we also call our American Idiom, recently logged another memorable butchering of the language. When her older sister was discussing the Netherlands (we won’t even ask why she was discussing the Netherlands), Emily asked if that is where Peter Pan lived. Forgetting for a moment that her English teacher, her Geography teacher and her mother should all be formally charged for this unfortunate case of mistaken identity, she is 14 years old and should know better.
If I had been present during the discussion, I would have dutifully pointed out that the Netherlands is a European country known for its windmills and tulips, while Neverland is where Peter Pan lived – and where many sellers in today’s market reside. Regardless of the market data and trends, and turning a deaf ear to the loud and clear message that buyers in this market continue to broadcast, so many of the pricing strategies and expectations I am seeing are the stuff of fantasy.
We referenced an excellent article on the value of Value Range Pricing awhile back by Broker Bryant at Active Rain. This piece is perhaps the best description I have ever encountered of how the value range can and should work. In value pricing, the seller lists not a single “offered at” price for their home but a range within which they are willing to negotiate. Done properly, the range defines a starting point and, within the range, negotiations take place until a price is agreed upon by all parties. Range pricing obligates sellers to “respond” to any offer in the range; that response can be an acceptance or a counter offer, but never an outright rejection. Historically, agents have described the value range in this way: Sellers see the top, buyers see the bottom and agents see the middle. The lower, bottom price provides the seller with the opportunity to greater exposure (as more people will find this home within their range of affordability), while the higher number allows them the latitude to negotiate their best price (and sleep nights knowing that they didn’t leave money on the table).
So how is it that when having submitted an offer at the bottom of a value range recently on behalf of my clients, the seller told us to take a hike? Neverland. Here are the numbers for this home:
Current price: $750,000 – $825,000
Estimate Square Footage: 2318 sf
BR/BA: 3BR Plus Loft/2.5BA
Original List Date: March, 2006
Original List Price: $850,000 – $950,000
Year Built: 2003
Original Sale Price: $600,000
Our offer at $750,000 was met with a message from the agent that the seller would only counter at $825,000 and that they were not willing to “come off the top end”. It turns out, according to the agent, that they have “time” and the comps (from two years ago) support their position. Neverland.
I see two issues here. One is the obvious misuse of a valid pricing strategy in a deceptive way. If you have no intention of selling at any price other than the top-of-the-range price, don’t use a value range pricing structure. You are wasting the buyer’s time, and you are wasting your own time. Second is disregard of the simple truths of value which Phil Hoover of the Boise Blog posted some time ago, and which I will offer again as a much-needed refresher course:
The simple truths of real estate value are:
- Your home isn’t worth what you need to get.
- Your home isn’t worth what you want to get.
- Your home isn’t worth what you owe on it.
- Your home isn’t worth what your neighbor says it’s worth.
- Your home IS worth what a buyer will pay for it.
- If no one will part with their money to buy your home, the value is undetermined and you will still own it!
If the market was a rising one, you as the seller could conceivably hold your breath until you turn blue and eventually, the market might find your price. In a declining (or, as the National Association of Realtors likes to call it, “stabilizing”) environment, however, you could find yourself in Neverland – without a sale. Or, you could in fact be in the Netherlands, tilting at windmills.
ABOUT THE AUTHOR Kris Berg is Co-Owner and Designated Broker of San Diego Castles Realty. If not-so static web sites are your thing, go here at once where you will find loads of real estate information including homes for sale, market trends, floor plans and more. Kris's hobbies include fencing and spot welding. She likes kittens. 
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{ 8 comments… read them below or add one }
You really are one of my favorite writers! Once again, you’ve given us an informative and fun read!
Coming from you, Dustin, that is quite a compliment! Thank you.
In addition to the term “stabilizing”, I also hear “normalizing”, “adjusting”, “leveling off”, and other real estate cheerleading catch phrases.
My #1 favorite is “soft landing”
Lereah’s next book should be titled “101 Favorite Real Estate Cheerleading Phrases”.
Everyone needs to realize that the market is neither good nor bad, the market simply “is” and we must deal with it.
Those of us who provide housing solutions for clients who need our help are still gainfully employed.
Kris – My wife reads you right after checking my latest post. At least she SAYS she reads mine first.
Exactly, most sellers have no intention of selling at the low range. Why? As a potential buyer it is hard to try to offer 100K below the low point because I do not want to “insult” sellers, but most sellers are not willing to reap the 100K, 200K profit on their home, so what we have is no movement. As a buyer I would look at prices a few years back and add a decent appreciation and then make an offer. Unfortunatley, most buyers are hanging on to 2005 prices. It just does not pencil out right now so most people are renting for so much less per month. I hope to see prices reflect the avg income of most people, i.e. 60K to 80K and not have to gobble up almost all of ones income. I have 75K sitting and would like to buy, either to rent out or? but RE in SD just does not make sense right now. Wish sellers would take their handsome profit and lower prices.
KC – Some buyers and sellers do get it, and that is where we find the sales. By and large, though, you are right. We have two sides clinging to their own notion of “value” and a stalemate of sorts is the result. Spring should be telling.
Kris-
Great entry. I was wondering if this attitude has permeated all types of sellers, or are Never Land residents a specific type and breed?
Raj – Neverland has experienced a bit of an outmigration of late, but there are still plenty of folks living there and feeding the local economy. Listing prices are starting to come down after too long a period of being out of whack with buyer expectations.