What is “value range” pricing and does it work? Episode #279
Todd: Hello. Welcome to Todd Miller TV. I’m here with Oana. We just shot a video earlier talking about price and how to price your home. So because Oana is now a new member of the MLS Committee, I want to chat with her about a subject which she has no idea what I’m talking about because I’m hijacking her as usual.
You probably have seen me go in the MLS and you see a price. It says this house is available for $200,000, right? That’s the list price. Some MLSs for example San Diego, the Bay Area, their MLS allows something called value range pricing.
For example, let’s say you’ve got a house that’s worth like a million bucks roughly. Well what they will do is you can put a lower and a higher price point on it. So you could say it’s worth between 975,000 and 1,025,000. You could put a value range on it.
So first of all, from a practical standpoint, if I’m searching – and the idea here is that it comes up if you put something just over a million, something under a million.
If you put more prices, the house shows up in a broader range of searches which is the concept. What do you think about that for practically like if we adopted that at the MLS where instead of just putting a price, we could put a range in?
Oana: I think to some extent, I think that’s confusing for consumers.
Oana: OK? Because then the consumer is looking at it and going, “Well, is it 975,000? Is it 1,025,000? What is it? What’s going to be acceptable to that seller? I don’t really understand,” and that seller may say, “Well, I don’t take anything under a million.” So then why are you putting that at 975? So I think that makes it confusing for consumers because what a consumer is going to look at, he’s going to say, “Oh, well, if the value ranges 975 to some other higher number, well, then really it’s 975.”
Oana: And I’m going to offer less than that. So I think that adds confusion to the market. I think it adds frustration for both buyers and sellers and as a culture, we are not accustomed to seeing value ranges. When we go to a store for it something to be X, not well, it’s between this and this.
I know that when I go to the store, a gallon of milk is 2.50. I don’t get a choice of either 2.25 or 2.75. It depends if that’s an even day, odd or full moon. So it’s a way we are culturally set up. If we were dealing maybe with a different culture, that might be different. But in our culture, we’re very accustomed to set prices.
Todd: OK. When you walk into the store, I mean if the loaf of bread is 1.79, you just go to the register and pay and walk out the door.
Todd: But that doesn’t happen with real estate. People want to get less than whatever the list price is. They feel good if they get less than the list price when they buy a house.
Todd: But they don’t feel good if they get – if the bread is $1.79, they pay the $1.79. It’s a commodity.
Oana: It is.
Todd: So how do you think it changes all of a sudden with why culturally? Because in some cultures, you will negotiate everything.
Todd: I mean if the sticker price is X, you have to get for less. So in other cultures, they intentionally overprice everything so that the people can save face and get stuff for less and feel good about their purchase.
Todd: They negotiate their price.
Oana: Right. Even in our culture, there are instances when you can negotiate your price. I mean we’re all accustomed to negotiating our price when we go buy a car, right?
Todd: Yeah, yeah. That’s negotiable.
Oana: I went to Sport Chalet and I went to the register to pay for something and they told me how much it was and I said, “Well, that’s ridiculous. I want a discount,” and I got a 15 percent discount. It was great! I was rather proud of myself. So it depends on what the instance is.
Oana: However, when I went to Sport Chalet, they didn’t have a price range up there. They had the price.
Oana: And it was up to me when I went to the register to say, “Hey, I think this is unreasonable. It’s an off-season item. I want a discount.”
Todd: So we go back to value range pricing. You think that even though it’s done in some markets, like if you go in San Diego and look through like Realtor.com, you will see some listings where it shows a range of values.
Todd: You think it’s confusing for the consumer. Like what does that mean?
Oana: I do.
Todd: And then culturally we don’t get it. It’s like well, if I’m going to make an offer, I’m just going to offer the lowest price.
Oana: Right. We’re not just going to offer the lowest price. We’re going to offer a discounted price off the lowest price.
Todd: Right, because we believe that that’s the price but then they just added a bunch to it to make that the value range. The list price that they would have picked plus they would put the higher number and so that’s the value.
Oana: If you tell me that the value is 975,000 to 1,025,000, why would I ever pay 1,025,000 when you’re willing to sell it for 975,000? It doesn’t make any sense.
Todd: Yeah, and I think the reason they did that was because like other previous videos – if you didn’t watch it, go back and watch the other video. In a market like San Diego, somebody says, “I want to find something between 600,000 and 800,000.” Your house is kind of in that range but you would really want to list it for like 585.
So you would say it’s 585 to 615 so that the people searching six to eight would see it and go, “Well this is a house worth between six and eight,” even though it’s not. It’s probably worth just under six but they want you to consider. I think that’s the idea is what they’re trying to do and the way I think it should work is the agent should do that.
The agent should say, “Look, you said six to eight. Here’s this house. It is 585. It’s not in your range but it’s just as nice as the other houses and it has got this, and this and this. It has got all the things you want.” So even though it’s below your lower range – and I think they should do it on the higher range too.
They should say, “Look, you said six to eight. This one house is listed for 815. But you know what? It’s probably only worth 775. They’ve overpriced it, listed it. They never got offers for the market. I think if we offer them less, they would take it. Let’s look at it.”
Todd: And I think that the agent can be the person because sometimes a consumer won’t do that. They won’t say, “Hey, this is overpriced but let’s look at it anyway.” I think the agent needs to get that information and do that.
Oana: Look, when I’m looking for a house for myself or for a client depending on the price range even though the client is telling me, “Hey I want it to be between 500,000 and 600,000.” At that point, I will look 50,000 outside of that because for whatever reason, properties may be overpriced or underpriced.
Todd: OK, you’re right.
Oana: So I want to include all that and then it’s my job to sit down with my client and go, “OK, I know you want to look between five and six. Let’s look at these outliers out here,” and say, “Do any of these make sense?”
Oana: A lot of times, we don’t want to go down, all the way down to 50,000 less because those properties don’t have the amenities we’re looking for or the lot or whatever. But it doesn’t take that long to take a look at them to see if there is a gem there that maybe is underpriced for some reason. Maybe they’re trying to sell it quickly which is wonderful. Now I’m getting a great deal for my buyer. It’s perfect.
The flipside is maybe somebody is overpriced because they need the property to be on the market longer.
Oana: Maybe there’s something personal going on and they need the property on the market longer. They’re going to lower the price when they’re ready. So that’s a house price to look at. If for no other reason, it’s a house price to look at and then track as they’re lowering the price. Then we can come in and make an offer because now they’re within the realm of reality.
Oana: So now we get to see that house and we get to be the first to put in the offer when everybody else has discounted their house because it’s overpriced.
Todd: So it’s safe to say that with you on the MLS, we will probably not see value range pricing show up on our MLS.
Oana: If I get a vote in that, then the answer is going to be no. I think that serves the consumer very poorly.
Todd: OK. Good. I like that. All right. So that’s the update for today. Thanks for watching and hope to see you on another video.