Hi folks. The following post is part of my "oldies but goodies" series. I first published this on October 6th 2006 and it was a "Carnival of Real Estate" winner. I hope you enjoy it.
Range Pricing. This seems to be a subject that some Realtors are just having a hard time getting their heads around. So, with that in mind, I am going to try and address one of the questions, in a different manner, to see if it will help. The biggest question seems to be "Why would a Buyer offer and pay more than the bottom of the Range?" Now I agree this is a good question. So I am going to tell you a story about Little Bobby. Hopefully, this analogy will help shed some light on this. It helps to remember, that purchasing a home, is as much an emotional decision as it is a financial decision. People want what they want and in a lot of cases, people want what they can't have. This is human nature and I hope everyone agrees with this. Ok, here goes.
- The place: New York, NY
The characters: The shopkeeper- Mr. Sell A. Lot and The customer- Little Bobby
Mr. Sell A. Lot owns a shop, in NY, that specializes in selling used toy cars, on assignment. In his shop, he has many shelves of cars organized by price(MLS). He has a $1.95 shelf and the cars on this shelf are all very similar in size and style. He also has a shelf with cars that he wants $2.15 for. These are a little bit bigger and a little bit nicer. Very shiny. For some reason he is having difficulty getting the children to look at the cars priced at $2.15. They always seem to want the $1.95 cars instead. Mr. Sell A. Lot knows that if they would just look at these other cars they would love them. So he has an idea. Mr. Sell A. Lot takes one of the $2.15 cars and places it on the $1.95 shelf. He writes on the bottom of the car "This car is Range Priced. The Seller will consider offers between $1.95 and $2.25 with $2.25 being a full price offer." When he steps back and looks at the $1.95 shelf he is really happy. The new "$1.95" car really stands out, it is so much better than the others. Very shiny.
Little Bobby's birthday was yesterday. Uncle Broker Bryant sent him a nice card with $2.00 in it and told him to go buy something nice for himself. Little Bobby has always wanted a car. He has been looking in all the toy car magazines and has been searching Realcar.com. He remembers Mr. Sell A. Lot's shop down the street and decides to pay him a visit. My Sell A. Lot seems like a nice guy. Little Bobby sees his picture on all the bus stop benches and gets an occasional post card from him. Once he even got a beautiful magnet with a car calendar attached. It was cool!
Anyway, Little Bobby goes into the toy car shop and immediately starts picking up and looking at all the cars on the $1.95 shelf. He can buy one of these and have a little money left over to maybe buy an accessory or two. They are all pretty nice. When he gets to the end of the line a glimmer catches his eye. Wow, look at that one! Man, that car is a lot nicer! It's very shiny! Little Bobby has made up his mind. He must have that car. So he runs over picks it up and takes it up to Mr. Sell A. Lot and throws $1.95 on the counter. Mr. Sell A. Lot rings it up and says $2.25 please. Now, Little Bobby is a perplexed, so, Mr. Sell A. Lot shows him the bottom of the car and explains to Little Bobby that the car is "Range Priced". Little Bobby is a little disappointed but still wants that car. It is so much nicer than the others. And very shiny!
So, Little Bobby, quickly getting over his disappointment, he really wants this car now that he has seen it, tells Mr. Sell A. Lot that he will give him $2.00, even, for it. Mr. Sell A. Lot explains to him that full price is $2.25 and he will not take $2.00 for it. Little Bobby thinks for a minute and decides that his Mom will give him a little more money because he has been such a nice boy and really does have a good score at school. Little Bobby says, "I really want that car Mr. Sell A. Lot, how about I give you $2.10 for it." Mr. Sell A. Lot responds "Bobby, I know you really like that car, so here's what I will do, I will sell it to you for $2.15." Bobby exuberantly says, "Sold" and runs home to get another $.15. Bobby is real pleased, he got a better car than he had planned on getting and he was a shrewd negotiator and got Mr. Sell A. Lot to "reduce" the price to $2.15.
Mr. Sell A. Lot is so happy he takes all of his cars and "Range Prices" them. Business really picks up and Mr. Sell A. Lot, and his shop , are the talk of the town. Mr. Sell A. Lot changes his sign out front, it now reads: Best cars in town, Range Priced, make me an offer. Next!
So there you have it. My meager attempt at an analogy to hopefully shed light on why "Range Pricing" works. Never underestimate human nature.
Little Bobby may even have Mr. Sell A. Lot, sell his car for him when he is ready to upgrade. He was a really nice man! If he hadn't placed this car on the $1.95 shelf, Little Bobby would have never seen it! And would have had to settle for less.
Why would a Buyer offer and pay more than the bottom of the Range? Because they do!
My last 10 sales are below. Notice DOM and list/sale price differential. Average DOM, in my market, is 98, right now. The proof is in the puddin' as my Grandmother used to say.
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