Pricing Matrix/Definitions | The Group at RE/MAX First

Do you take the blue pill or the red one (How does he word it?)

In the last article, we discussed critical mistakes sellers make that cost them money on their home sale.

In this issue, we're going to discuss the pricing matrix.

The pricing matrix is the relationship and the cause and effect that the 4 different pricing points have on each other.

First, we’ll define these points then look at how each interacts with the other.

• FAIR MARKET VALUE (FMV) (range) — a price that appeals to many buyers and causes a sale within a reasonable time.
• ASK/LIST — the initial and ongoing pricing that the seller sets to attract potential buyers
• OFFER/VALUE — what it is worth to a specific buyer, and where the negotiation starts
• SALE PRICE — the trade price after reality, frustration, comparison shopping, excitement and solid planning and monitoring

This whole process starts with and ends with properties at fair market value.

First off, let me say that most sellers are OK with getting fair market value for their home, and if I was to ask you right now, are you ok with accepting an offer for the current fair market value the majority of you would say yes, but not a penny less. So we’re on the same page, right? Well maybe, and maybe not.

You see although you said you were OK with fair market value, as we discussed in the last video there’s a 68-76% chance that you as a seller think the fair market value is higher than it actually is. And although you said and not a penny less, the statistics show that you are actually likely to employ a pricing strategy that will greatly increase your odds of taking less and creating more work to get there…. NO, REALLY.

But more on that a bit later, right now, let's start with the fair market value.

A realtor is going to take the sold listings within the last 3 months (current), that are nearby (geographically relevant) remember location, location, location, that are similar in size and condition to yours. We call these COMPS. Now, in all reality, the only thing that matters is sold properties, these are the FACTS, it discounts all those listings that you see on the “ACTIVE” market that are either in la-la land and will not sell (roughly 1/2 – remember) as well as those listings that may still undergo a price reduction or two before getting an offer. And it is also going to discount what the asking price is and go straight to what THEY ACTUALLY GOT and AGREED TO.

From that, the sellers are going to “Negotiate” with the agent, on how much they will list for. Now, this is a KEY area to watch. This is where an agent who acts like a chameleon can step in and sell you a bill of goods, to get you under contract and then start beating you down on price afterwards.

The asking price or list price serves 2 functions, it allows buyers to filter out properties that are not viable (out of the price range – and this is the second most commonly used filter with area being the first) and it is an enticement to make an offer. Much like a magnet, if it is close enough, it will entice an offer, if it is not close enough it will not. In fact, if it is too far out then it will be used to filter your property right out of ever being viewed online never mind in person. It will sit with properties that offer higher value for the same ask price. This is KEY, and it's why even the best marketing if priced too far out (bracketing) will never be seen by an actual potential buyer, and even if it is, it will not have enough appeal.

Comparison Shopping

Next, let's look at the buyers' process. The buyer, with their agent, will look at hundreds and hundreds of homes online, whittling down and refining to a dozen or so that they view in person. The buyer and the agent will COMPARISON SHOP for the right home, that offers the best value.

Assuming it’s at a price the buyer thinks can be worked with they will assess what they value it at, what they are willing to pay for it, and an offer price to start working with. Now, this is the COUNTERINTUITIVE PART OF REAL ESTATE, higher ask prices do not elicit higher offer prices, quite the opposite, the real determinant to a close to ask price is lower days on market, and the key to getting over ask, is either a very, very low days on market or the addition of other offers. (multiple offers)

The longer a home has been on market, typically the lower the buyer will go, the lower the buyer's agent will push all parties for, the lower the seller's agent will advise their seller they should be accepting, and the lower the seller will accept because of 2 reasons”

• They have hit the reality that their home is not going to get what they thought it would.
• They are tired and stressed out with the process, keeping the home in “SHOWING CONDITION”, and leaving the home so strangers can see it.

That was scenario 1, NOW, let's look at scenario 2.

The Auction Mentality

The alternative to that is to price your home so the filtering allows true potential buyers to see it online, with good enough marketing that it seems worth it to them to view in person. The actual property showing enough value that compared to the other properties seen it is worth putting in an offer, and that the ask/list price is close enough that it is either worth it, or even ENTICING enough to start the negotiation process.

NOW, if it is ENTICING enough, and a little extra effort comes into play on the agent's part, and with the right pricing/timing strategy, then often, ADDITIONAL OFFERS, can be elicited. Now we are in a different game altogether. You see in scenario 1 a seller has to fight with a buyer in the negotiation process. They need to puff out their chest and show they cant be pushed around. That they will still get a fair price for their home. In Scenario 2 (The multiple offer scenario) the seller sits back while 2 or more buyers fight for the privilege of owning your home. You see, demand breeds demand. People want what other people want and this initiates something called an “AUCTION MENTALITY”. They beat each other up, while you sit and watch, pulling the strings.

Sound interesting? GREAT, well let's get back to the FMV

Having a good understanding of FMV is really the foundation of getting all the rest of this to work. So in our next article, let's discuss the FMV and how you can increase it. BY THE WAY, how most people think they can increase it is DEAD WRONG, and creates a negative cash flow. But don’t worry, we’ll show you how to get a good ROI and more money in your pocket.