Strategic House Pricing: A Little Low, a Little High, or Is There a “Just Right?”

savannah houseHere’s a “must-read” for buyers and sellers of real estate this week: Bob Hunt’s article on RealtyTimes, “What Is the Correct Way To Price a Listing?” Hunt analyzes a recent article in the Wall Street Journal (August 8, 2013), which described a study purportedly finding that “higher starting prices are indeed associated with higher selling prices.”

The underlying reason posited by the study’s authors is a phenomenon called “anchoring,” which basically means that home buyers develop a respectful first impression of a home with a higher price tag, and are thus willing to pay more for it in the end.

Kudos to Hunt, however, for pointing out a basic flaw in the study: The price variations they’re talking about ranged from about $117 to $187. Hunt notes that this has all the significance of “a rounding error.” I can’t add much to his reasoned analysis, but let me call those dollar amounts by another name: Puny! As a percentage of a home selling price, so insignificant that they might represent mere quibbles over repairs!

In the meantime, having observed bidding wars on a number of occasions (they’re common here in California), I can say that there are times when underpricing a house has the exact effect that real estate agents anticipate: They bring in scads of interested buyers, some of whom will fall in love with the place and bid amounts that are far higher than anyone would have realistically set as an original list price.

But that’s in one market, and may not work for every house. Once again, I can’t do better than to refer to Hunt’s observation that, “[A]s far as answering the general question, ‘What is the best pricing strategy?’ we still have a long way to go.”