Courtesy of Realtor.com
What is value range pricing in real estate? It’s when home sellers, rather than listing their home at a certain price, put up a range instead. For instance, rather than listing a home for $500,000, the ad will indicate that the sellers are looking for offers in the vicinity of $475,000 to $525,000.
Also known as variable range pricing, or VRP, this type of pricing is rare—but it’s growing in popularity because it offers certain advantages to both buyers and sellers.
Once buyers and sellers understand the rhyme and reason of the concept and how it can uncover more opportunities for both sides, value range pricing will likely expand throughout the industry,” predicts Sacha Ferrandi, founder and CEO of Source Capital Funding in San Diego.
Here’s everything you need to know about VRP and how to make it work for you.
Benefits of value range pricing for home sellers
OK, let’s get this out of the way first: Home prices are nearly always negotiable, even if a home is listed at a specific price. If the local market’s hot and the seller gets many offers, a bidding war could easily drive the price above what’s listed; or if the listing has been languishing, the seller might entertain an offer well below list price. The key with VRP is that it makes this flexibility overt, so there’s less gambling and guesswork for all involved.
VRP offers sellers clear benefits by bringing more eyeballs to their listing. After all, buyers often search for listings by price, so if your home is listed at $510,000, you’ll miss all those buyers who’ve limited their search to homes at $500,000 and below—which is a shame if you’re open to entertaining a slightly lower offer to get this deal done.
Another benefit for sellers? By listing exactly how low they’re willing to go, sellers can set limits—and potentially avoid the hassle of fielding offers even lower than what they’re willing to accept.
“Since potential buyers now know the bottom of the acceptable range, many sellers have found that they are wasting less time dealing with lowball offers from speculators or bargain hunters,” says Ernie Rafailides, managing partner of Bayview Management in Towson, MD.
Benefits of value range pricing for home buyers
VRP offers buyers benefits, too.
“Your universe will open up, and you’ll be able to see a lot more homes,” says Cindy Bunch of Keller Williams in Atlanta.
Plus, buyers can make lower offers with confidence that they won’t offend the seller.
“Buyers are often afraid to make offers below list price,” says Rafailides. “But value pricing helps mitigate this fear.”
Downsides of value range pricing
In spite of these benefits, some experts see downsides to VRP, too. For instance: Which number do you think buyers are going to gravitate toward when making an offer? The low end, of course. As such, sellers must understand that they might receive offers only in the lower price range rather than their ideal higher price.
VRP can also be misleading for buyers who worry that the seller won’t accept a lower-range offer.
“What buyers often forget is that a value range pricing listing is attracting more visitors, which means more offers will likely be made, resulting in an organic price inflation and a potential bidding war,” Ferrandi says.
That means buyers might end up bidding on multiple homes with their low-price strategy and never have it pay off.
Is value range pricing right for you?
VRP isn’t ideal for all markets. It’s best for tepid markets where there’s a risk that a home might not field many offers at all.
“In areas where houses sell quickly and often above list price due to high demand, offering a price range isn’t necessary,” Rafailides notes.
How to list your home as VRP
Agents caution that a potential stumbling block for reaching that wider audience is that the price column of some multiple listing services allows only a fixed dollar amount. More sites should begin implementing the range capability as this pricing method gains popularity, but until then, sellers can get around that by adding the range in the listing details.
For best results, Bunch recommends sellers keep their price range relatively tight.
“The difficulties occur when sellers expand their price range too far,” she says. “Then they realize after listing their home that they actually don’t want to sell for the lower price.”
Even if you decide against listing a price range on your home, once you do have an interested buyer, it’s also fine to fill them in by communicating this flexibility through your real estate agents. This bit of wiggle room might be just what you need to bring this deal across the finish line.