In slow market, agents turn to creative pricing

Value Range Marketing draws interest with pricing highs and lows

Thursday, October 26, 2006

By Glenn Roberts Jr.
Inman News

Carlton Lund, The Lund Team, Prudential California Realty

Carlton Lund was skeptical when he first heard about a real estate marketing technique in which agents list a price range rather than a fixed price for a property.

About a decade ago, Lund, an agent for a Prudential California Realty office in the San Diego area, attended a presentation about listing properties with a price range. The practice had already caught on in Australia. The U.S. real estate market at that time was "very lethargic," Lund said. "I think there are some similarities today to the market a decade ago."

He recalled, "Initially, I was apprehensive of the concept. As slow as the market was, I decided to test it." A seller agreed to use a price range on a condo unit that was on the market for 93 days, and an offer came in within 48 hours. "That was like an epiphany for me," Lund said.

Flash forward to 2006, and about 60 percent of the sales in San Diego County are "Value Range Marketing" transactions in which properties feature a price range. Sandicor Inc., a regional multiple listing service for San Diego County, allows its members to enter price ranges in the MLS. Realtor.com, a popular home-search Web site affiliated with the 1.3 million-member National Association of Realtors trade group, accepts and displays price ranges for properties. And Lund has emerged as a national resource and advocate for real estate professionals seeking to use the marketing technique.

There are still plenty of skeptics and some outright opponents to Value Range Marketing (VRM), and the marketing technique represents just a tiny share of all U.S. property listings. But Lund said VRM is attracting a lot of attention with the slowing housing market.

He rattled off a list of market areas from which real estate professionals have contacted him in the past month about using VRM, among them: Vancouver, Canada; Golden, Colo.; Flagstaff, Ariz.; Ogden, Utah; Minneapolis, Minn.; and Staten Island, N.Y. "A decade ago I was the 'Lone Ranger' out there," he said.

Home sellers and buyers alike typically have a price range in mind when they enter the real estate market. Online property-search sites, too, typically allow users to narrow the list of matching homes by entering a minimum and maximum price. Using a range for pricing potentially opens up a wider audience for a home, Lund said.

"It's the bigger net theory of fishing. It opens up the marketplace to more people looking at the property," he said. Also, in a market that is subject to major swings in pricing, VRM can reduce the likelihood for price reductions, he said. "When market conditions are changing the way that they are, if you put a fixed price in it might only be valid for that day."

Lund's Web site states that out of 42,449 single-family home sales recorded in the MLS database for San Diego County in 2004, those listings with price ranges spent 30 days on the market compared with 37 days for those listings with a set price.

Meanwhile, a study published in August 2005 in The Journal of Real Estate Finance and Economics found that property listings with price ranges took longer to sell than those with standard pricing, and that there was a negligible effect on selling price for homes listed with a price range. That study focused on 5,852 home sales collected from Dallas and Tarrant counties in Texas from January 1999 to December 2000, in which 3 percent of the listings featured a price range.

Marcus T. Allen, a professor for the college of business at Florida Atlantic University who was a co-author of the study, said the study concluded "there's no statistically significant difference in the price, on average, that this marketing strategy (range pricing) generates. It didn't hurt, it didn't help -- it's just another way to market real estate."

He also said that value-range marketing was a relatively new and innovative technique in the Texas market area at the time it was studied. "It deserves to be studied again," he said. "As the real estate market gets more buyer-friendly, sellers are looking for innovative types of things. VRM is something different."

The study concluded that it took about 4 percent longer to market VRM properties than it did to market fixed-price listings. One interpretation of this result is that VRM properties may attract more "window shoppers," Allen said, which could drag out the selling process if there are more showings.

Meanwhile, Lund noted that the study focused on a very small sample of VRM properties and the MLS that supplied the data did not have a specific data field for a price range. "If (VRM) weren't working it would've gone by the wayside," he said.

In cases where MLSs do not accept a price range, agents typically enter the high-end price of the property and note that the property is a VRM property in a text description included with the listing data. Lund and some others who use price ranges also enter a numeric code to signal that a property is VRM. They list the last three digits of a VRM property's price as 876 -- the numbers you press to spell "VRM" using a telephone's number pad.

Also, Lund has developed a list of 99 suggested ranges that sellers can choose from to market their home, though he said these can be customized. Lund recommends that sellers pick a spread of 10 percent to 12 percent between the top price and the low price. There are examples, though, of much wider spreads that some agents use for VRM listings.

The price range does not necessarily require sellers to accept a qualified offer that is within the range -- and some real estate professionals take exception to this aspect of VRM listings. Lund notes that VRM listings typically include language stating that the seller will consider all offers within the range. "They have the obligation to either accept or counter the transaction," he said.

For example, a description for a VRM-listed property in Florida states, "The seller will entertain offers based on price, terms and conditions within the range."

Kaye Thomas, a real estate agent for Real Estate West in Manhattan Beach, Calif., said she has occasionally encountered VRM listings when working with clients in Orange County. Thomas said that her buyer clients have been frustrated by these listings on occasion because an offer is not accepted that falls within the suggested price range.

"I don't see it as a wonderful marketing tool," she said. "The ones I've seen have been fairly large differences (in the price range) -- $50,000 or more. It's kind of like walking out there and throwing out a price," she said. A price range set to "massage a seller's ego" is not doing a service to the seller or the buyer, she said, adding that agents need to work to educate sellers about current pricing trends. A price swing of $100,000 or $50,000 for a range-priced listing is too wide, she said.

And Tony Arko, president for the CC Sells Team, a Keller Williams real estate team in Northern Virginia, said there are technical difficulties with using range pricing in the regional MLS system, and he believes VRM is simply a marketing gimmick. "It's cumbersome to do a search in the MLS" for range-priced listings, he said, unless the MLS search is conducted in a price range that includes both the upper-end and the lower-end of a range-priced home.

If range-priced listings generate more attention for a home then it could be an effective tool, Arko said. "I can't speak to whether it works or not. In this marketplace, when ... a lot of listings aren't selling, you've got to generate buyer leads and do whatever you can to get the sign in the ground," he said, adding that it could be most useful if range pricing features a narrow price range.

Garner Chandler, an associate broker for Davis Properties in Northwest Florida, said her company began offering VRM listings in August. "We're having an extremely soft market, as are many other coastal and resort markets," she said. "We looked at VRM as something to try. It's been fun because it has really got people talking."

She said that one of her clients was opposed to the concept at first and disagreed with Chandler about the list price of the property. The seller later consented to trying VRM, she noted, and that seller grew more comfortable with the lower end of the price as time went on.

Lund said that offers at the low end of the price range are OK and expected in a slow market. "We always tell the seller it's better to have a low offer rather than no offer at all," he said. Real estate agents, he said, "are paid to negotiate," and the negotiating skills of agents are key in the success of VRM transactions.

Chandler agreed, "The good thing is you get people talking -- you have two parties at the table."

While clients seem to be quick to pick up on the concept of price-range marketing, real estate professionals sometimes have questions about VRM, she said. "The biggest group of people who we need to educate about it is the other (real estate agents)."

About half of the agents at Chandler's company are using VRM now, she said. "I think it's a great tool. It's another arrow in your quiver."

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Copyright 2006 Inman News