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Home Pricing Strategies

When it comes time to sell your Los Angeles Property pricing is THE most important things to consider, pricing is even more important than marketing! 

Only 3 Pricing Strategies:

Above Market – Only in Seller Markets where prices are appreciating rapidly.

At Market – Always a good strategy in any market

Below Market- Best in Sellers Markets where you hope the price will be bid up or Buyers Markets where you sell for less in order to sell quickly but not Balanced Markets where you might get full-price offers that you are unwilling to accept. 

There are only three pricing strategies: Pricing Above market (real estate agent’s lease favorite pricing strategy) Pricing at Market, and Pricing Below Market. That’s it.

When determining which pricing strategy is the best you need two know 2 things: The current Market Conditions and the Market Price of the property.

How to find your Homes Market Value

I wrote an article about the comparable sales approach to value (LINK) that goes into more detail about using recent sales (COMPS) to price property. If the property is very unique where good comps are hard to find, you can also try the income approach to value or replacement cost methods- 90% of the time in residential the Comparable Sales Method will be best.

For most home sellers they first turn to internet websites like Zillow’s Zestimate and Redfins value estimate to get a sense of values. While the home value algorithms for these websites have improved substantially over the years, they can’t see inside your home and condition of the property can have a 10% to 30% change in the property value so I never put too much stock in estimates made when someone hasn’t been inside the property.

You might have an idea about the price of observing your local real estate market. You can get a pretty good idea by watching your market for a month or two and going to some open houses and checking the recent sales in your neighborhood.

The Quickest and Easiest to find out the market value of your home is to talk to a few local real estate agents in your area.

How to find out your local Market Conditions

If you watch the news or read your local newspaper there is usually a good amount of coverage of the real estate market. In general if there are more buyers than sellers, properties sell in 30 to 60 days and prices are going up that is a sellers market. If properties take 60 days to 90 days to sell and prices are stable that is a balanced market. And if properties is selling in 90 days to 180 days or more and prices are going down that is a buyers market. 

Real estate moves wit the economy, so if the ecomony is expanding expect sellers market, stable- balances amrket, or in recession a buyers market.  

What is my best Pricing Strategy?

Like most answers in real estate, it depends. With pricing it depends on the market conditions:

Sellers Markets: In seller markets, you really can’t go wrong with pricing strategies- Pricing Above the market, At the market, or below the market will all work. This is the only time that pricing over market works. How much you can price over the market value depends on how fast prices are going up, 5%-10% is a realistic number to price over the last comp unless the market is going crazy (10 to 20 offers on houses) then maybe 20%. As a general rule of thumb, I try to never price higher than 10% of the market value because you usually won’t get many showings and ZERO OFFERS.

Balanced Market: In Balanced Markets, Either pricing at market or pricing below market are good strategies. Pricing Above market will result in a wasted 30 -45 days an a price reduction before being able to sell.

Buyer Markets: In Buyer Markets, the best pricing strategy can be to list below the market value. When buyers think that values are declining they are hesitant to buy (wouldn’t you feel silly buying something and it goes immediately down?). So to get buyers off the fence sometimes you need to give them a bit of deal to commit. For sellers in declining markets, you are usually best served to sell sooner rather than later, as the long market times can dramatically increase your holding cost, and if values are declining at 5 to 10% a year, you are losing about 1% per month. That may not seem like a lot but if it takes 6 to 12 months to sell that can be a serious dent in your final sale price, and you might be in the same situation you were in a year ago except now you have a lower price.

Creative Pricing Strategies

I am not a big fan of pricing gimmicks because the more complicated you make something the less likely people are to understand or take action. With that said, sometimes thinking outside of the box can get you above average results.

Offering Incentives- sometimes I see sellers offer larger Selling Agent Commissions for closing before a certain date. Another incentive I see in condos or properties that have homeowners associations is seller prepaying the buyers HOA dues for 6 months or 1 year, or even 2 years in some cases. For new construction properties, sometimes you can negotiate giving the buyers some upgrades as incentives such as an outdoor fireplace, upgraded floors or appliances, finishing closets, or window treatments to name some of the more common ones. One developer on the Wilshire Corridor offered Penthouse buyers a brand new Bentley upon closing. Negotiating Furnishings is another incentive that can be added to clinch a deal. 

Range Pricing- I am not a big fan of range pricing, because in my experience buyers just think the bottom of the range so it is the same as just pricing at the lowest price. Range pricing does get buyers in a lower price bracket to see your property so it can expand your market without necessarily committing to lowering the price so that’s the advantage. Again, I’d just stick with pricing at market, if you are high and range pricing to market, why not just list at the market? And if you are listed at what you think is the market and you aren’t selling, then you may have over estimated your market value.

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