“The Psychology of Pricing To Achieve Top Dollar for Your Home” by Nick Pallis ©

The conversation begins like this – Listing Broker: “We need to lower the list price of your home.” Seller: “If it’s a matter of price, why don’t buyers just make a lower offer?”

If there is a bane to every Real Estate Brokers existence, it’s explaining why over-pricing a home leads to one of the greatest deterrents to selling a home for top dollar. Because psychologically, the closer a home is priced to the market’s true “perception” of value, the higher the eventual closing price. Let’s examine why.

In a previous article about negotiating residential real estate, I address the issues associated with making emotional purchases. I explain that whether buying a stick of gum or a shiny new car, at its core, making a purchase is an emotional decision and yet, when it comes to buying or selling the place we call home the emotions can run especially high.

For buyers and sellers alike, the two primary drivers affecting a decision to buy or sell is the desire for gain and fear of loss. In that same article, I write about the importance of considering the self-interest of the opposing party, in this case if you are a seller, it means considering what prospective buyers will be feeling as they walk through your home. Recognizing that buyers buy based on emotion first, then justify their decision with logic, how much will the home stand apart compared to the others they are looking at given its price point and what kind of emotional connection will it create?

For a moment, let’s imagine ourselves in the buyer’s position. We will likely tour dozens of properties of varying quality and condition and naturally gravitate toward those few homes most appealing to us within our predetermined price range. We will then make an offer on one of those homes at the top of our list. The point here is that as long as a home is in our price range, the chance of us choosing a home that is not one of our top picks based on comparable quality and condition are next to nil. So for the seller, the only tool available to control how their home stacks against the comparable competition within a given price range, is to make sure it’s priced similar to those few homes most appealing to us, the buyer, at the top of our list.

So back to our seller’s original question of “why don’t they just make a lower offer?” At this point in the buyer’s decision process, it’s all about “the house” and how it compares to every other home the buyer can “already afford,” within their pre-determined price range. If a buyer is looking for a highly desired, “blue triangle” and your house is perceived as a lesser desirable, “green square,” they’ll have no interest – even at a lower price. Also, if your home is overpriced, the buyers that would otherwise be interested in making an offer at a lower price are unaware of the home, because it, along with every home in its price range is higher than what they can or want to afford.

So, the goal for every seller should be to price their home such that it falls within the top three choices of the comparable marketplace. Doing so increases the odds of attracting an offer earlier in the sales cycle which in turn increases the probability of simultaneously attracting more than one buyer prospect. Even just the perception that there’s likely a second competitive buyer creates a substantial negotiating advantage for the seller.

Conversely, the longer a home sits without an offer the more it stagnates, becomes shop worn and ultimately ends up selling for even less than it would have had it been priced lower to begin with. This is because a late offer always lacks the psychological benefit of a potential competing offer and the energy it creates from multiple interests.

This brings us back to our original premise, that buyers buy based on emotion first then justify their decision with logic and moreover, that every buyer has a desire for gain and a fear of loss. Positioning your home as one of the top three choices in the comparable market given its price range allows us to tap into these emotional drivers to achieve top dollar every time.

 

 

Nick Pallis is a Broker with Windermere Real Estate located in Kirkland, Washington, serving Seattle’s Eastside communities. Visit www.nickpallis.com.