Selling Your Home: Pricing Tactics
- Last Updated: Tuesday, 23 February 2021
No matter how slow the housing market might seem, it’s always possible to sell a home. If anyone ever complains they can’t sell their home, they’re only telling half the story.
In this article, we’re going to explain how any home can be sold; even in a slow real estate market. We’re going to talk about the law of supply and demand, and how this straightforward economic relationship can affect home prices. We’re also going to explain how to go about setting a home’s price so the chances of it selling are greater.
There is no doubt that some housing markets are “hotter” than others. For example, homes might start selling quickly if new jobs are created, as was the case in the Las Vegas housing market. But behind all of the hype heard from a real estate agent, stands a very simple rule of thumb that can explain why homes are moving faster in one area of the country versus another.
Supply and Demand
Fundamentally, homes will sell more quickly in an area where buyers are creating more demand than sellers can supply. Likewise, homes will sell more slowly when sellers are creating a larger supply of homes than buyers are willing to purchase. The economic theory known as the law of supply and demand tells us that quantity supplied is related to price paid.
This theory also tells us that equilibrium prices occur where demand equals supply. If homes in a certain area are taking too long to sell, their price is above this equilibrium point and there will be a surplus of homes in that market.
Home Pricing Example
In 2019, the average new home sold in just about six months. Let’s say a homeowner has been trying to sell their home for a year at $500,000, and it’s still not sold. What does the law of supply and demand tell us? The home’s price is higher than buyers are willing to pay.
But what if that same homeowner were to put their home on the market for just $1.00? Chances are the house would sell immediately; demand is very high for that home at that price. From this example it’s possible to conclude the right price (equilibrium price) for the home is somewhere between $500,000 (too high) and $1.00 (too low).
This example might seem extreme, but many homeowners refuse to accept the fact the price they’re asking for their home is too high. For a variety of reasons, demand has diminished for homes in their real estate market, and sellers are refusing to price their homes at the point buyer’s are willing to pay.
Pricing a Home to Sell
Now that we’ve explained why some housing markets might slow down, it’s time to turn our attention to pricing strategies. By employing some of the simple tactics we’re going to describe, the chances of selling a home should increase.
Left Digit Effect
It’s fairly common to see advertisements on television for products selling for $19.99. Even though this price is just a penny shy of $20.00, marketers know that buyers’ perceptions are influenced by the way they’re taught to read words and numbers: from left to right here in the United States.
In the example above, the reader will focus-in on the first digit of each price point: $19.99 and $20.00. Since the number 1 is smaller than the number 2, a buyer perceives a greater savings than really exists. This is referred to as the left digit effect.
This same rule applies when selling a house. Homes priced at $499,999 versus $500,000 will be perceived as being less expensive than the actual dollar difference in price.
Status versus Bargains
Another lesson that marketers have learned through studies is that consumers associate “exact” numbers with bargains, while rounded numbers convey a sense of status. Homeowners can use this knowledge when they’re deciding how to position their homes in the real estate marketplace.
For example, let’s say Haley is selling a home she believes is valued slightly under $1,000,000. If she was looking to position this home as an exclusive or prestigious dwelling, then she’d want to use a rounded value such as $980,000.
If Haley was looking to position the home as a “bargain,” then she would want to use a more exact number such as $979,250. By using a more exact value, consumers believe the seller has put a lot of thought into the price of the home.
Unfortunately, it’s often necessary to drop the price of a home to spark a buyer’s interest. This final tip explains how to go about dropping the price of a home after it has been on the market for too long.
Once again, we’re going to refer to human behavior and how a buyer might react to a change in a home’s selling price. Here we know that if a drop in value is easy to calculate, the decrease is perceived as being larger than if the value is difficult to determine.
For example, if a seller were to drop a home’s price from $979,250 to $971,125, a buyer might perceive this as a small discount from the original price. However, if the seller were to drop the home’s price from $979,000 to $971,000, buyers perceive this as a larger drop in price.
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