Value range pricing. Trick or Treat?
Sam Schneiderman, broker owner of Great Boston Home Team (our Monday guy) explains a marketing technique called Value Range Pricing.
Sometimes I see listings with a published asking price and a comment like “seller will entertain offers between X and Y.” There are two variations:
First:
I recently saw a listing with an asking price of $475,000. The MLS comment read: Seller now entertaining offers between $475, 000 - $525, 000.
Second:
The same property might be listed at $525,000, with a similar comment indicating “Seller will consider offers between $475, 000 - $525, 000.”
This could be the same property with the same price range, but with a vastly different asking price.
This pricing “technique” is called “value range pricing” or “value range marketing”, known as VRM among agents. It appears to have originated in Australia and I believe it was introduced to the U.S. by Prudential. It’s not as prevalent here as it is on the west coast. On either coast, there are agents that swear by it and there are those that swear at it.
Value Range properties might indicate a range within the range of market value, above that range or even below the range of market value (although that is unlikely).
Listing agents might find VRM a good tool to use with rigid sellers that insist on holding out for an unrealistically high price because it softens them to the idea of negotiating and understanding that they might get something within the range, rather than their exact number. On other hand, in my experience and that of some other agents I know, it baffles most buyers after it is explained to them because they are usually expecting to negotiate off of a fixed asking price.
It is especially frustrating to savvy buyers and their agents when VRM is used on overpriced properties because the bottom of the range might be all that the property is worth. In that case, buyers could have a problem if they start negotiating at the bottom of the range because they realize that going higher will result in over paying.
What’s a buyer to do if they are worried about starting low or insulting the seller with an offer below the indicated range?
Buyers should realize that VRM is a tool to get them and seller to the negotiating table by letting them both think that it’s possible to make a deal somewhere within the range. If the opening offer needs to be lower than the range to get to the right number, so be it.
I tell my buyers that they should never worry about insulting a seller because sensible sellers and agents should realize that an offer indicates that a buyer can see themselves owning the property, but only if both parties can come to terms that they can both live with. There is no insult in that.
Have you had any experience with Value Range Marketing?
Did it work for you or against you?
Agents, what do you think of VRM?
