Value-Range Marketing Takes Hold
Believers in a decade-old marketing strategy that prices a home in a range say they get faster sales at higher prices.
January 1, 2006
A two-bedroom condo in the San Diego area sat on the market for 93 days in 1995 with one showing. “And that was from a mortgage broker,” says Carlton Lund, a broker for Prudential California Realty in Carlsbad, Calif.
Frustrated, Lund, who heard rumblings about a concept called value-range marketing at an industry convention, got his seller to entertain offers from $120,000 to $150,000. Within 48 hours, the property sold for $137,000.
A decade after the concept of value-range marketing, known as VRM, hit the U.S. real estate market, supporters like Lund contend that the marketing strategy draws higher sales prices and happier sellers—as well as helps buyers get into homes they wouldn’t ordinarily think are in their price range. In value-range marketing, the seller sets a price range (i.e., $335,000 to $375,000) instead of just a high price ($375,000). This helps to attract more buyers—since a home set in a range will be within their price range, whereas a home listed only with the high price may not meet their price criteria—as well as generate more offers, and ultimately draw a higher sales price. The strategy does not obligate sellers to accept any offer, Lund says. It allows sellers to entertain and counter offers within the range with an acceptable price and terms, just as they would with a listing that carried a single price.
Lund says in San Diego County, Calif., where he works, approximately 57 percent of all closed sales in 2005 used range pricing, up from 10 percent in 2000. In 1996, when the strategy was first used in the market, there were 12 total closed transactions using the method.
“It’s like the difference between having one fish hook to catch a bass and having a whole net to catch a bevy of fish,” Lund says.
Prudential Drives the Market
Prudential Real Estate was the first major franchise to adopt value-range marketing, which originated in Australia. It implemented the Prudential Value Range Marketing (PVRM) in 1996 and offers marketing support for its sales associates who use it.
Prudential practitioners in Southern California are not the only ones jumping on the VRM bandwagon. The practice is gaining favor with real estate professionals in Colorado, Arizona, Massachusetts, New York, Florida, and even Canada, says Lund.
Ryan M. Linn, a salesperson with Prudential Linn Real Estate Inc. in South Easton, Mass., is a convert. Linn tried and then stopped using range pricing in 2000, but revisited the practice in a tighter market in May. He says about 15 percent of his company’s 2005 closed transactions were priced in a range.
Linn believes the marketing tool has resulted in faster sales. “From my experience, for the practitioners who use PVRM, are educated about it, and can educate the consumer, it has worked out well,” Linn says.
How well? In one instance, Linn says he had a fixed-price home that had eight appointments but no offers during a two-week period. With a value range of $339,000 to $399,000, the listing drew 19 appointments and four offers during the following two-week period. The market analysis on the property set the value at about $380,000, and the accepted offer was $384,500.
Laura Schlecte, ABR®, CRB, broker-owner of Prudential Premier Properties Inc. in Jackson, Mich., says value-range marketing is applicable in hot or slower markets.
“If my house is competing with other houses in my block, it becomes more attractive because I have a lower end to my range,” Schlecte says.
Lund says 98 percent of his 2005 listings used a range and sold within 24 days. By comparison, the average market time in San Diego County in 2005 was 57 days.
In addition, Schlecte believes range-priced listings sell for more money. In 2004, for example, Schlecte says the list-to-sell-price average on range listings in her overall market was approximately 98 percent. The list-to-sell price on a fixed-price listing for the overall market was 86 percent.
Not Everyone Is Sold on VRM
Ron Rutherford, a professor of finance and real estate at the University of Texas in San Antonio, who co-authored a study on range pricing published in The Journal of Real Estate Finance and Economics, remains skeptical of the strategy.
Rutherford’s study, which used a sample of 5,852 residential houses (176 of which used value-range pricing) in Dallas and Tarrant counties in Texas sold from January 1999 to December 2000, found that range-priced homes took about 4 percent longer to sell and sold for about the same price as fixed-price homes.
John Allaire, CRS®, GRI, broker-owner with Easton Real Estate LLC in Easton, Mass., says when a solid offer is not accepted, buyers become confused and upset. As a result, deals and professional reputations can become tainted.
“Buyers feel that if they’re making an offer within that range, it should be accepted,” Allaire says. “If the range is $500,000 to $540,000, and the buyer offers $520,000 but the seller says, ‘No,’ some buyers feel like it is a bait and switch, where they are lured in with what looks like a decent price but then told they can’t have that price. So it affects everyone involved in the sale and can leave a lot of negative feelings.”
“It’s not bait and switch,” counters Renee Shepherd, a national trainer for Prudential Real Estate and an expert on PVRM. “Price is not the only factor in accepting somebody’s contract. [Sellers] may not accept the lowest price in the range because they don’t accept the terms. Somebody could offer full price on a fixed-price listing and it still might not be accepted because of the terms.”
No matter what the terms, Helga Struffert, GRI, owner of Lakeview Estates & Realty Inc. in Carson City, Nev., says price ranges make practitioners look unsure at best.
“To list a price range does not accomplish anything but establish the bottom price a seller will accept and it’s therefore meaningless,” Struffert says.
Lund says about 30 percent of his initial offers come in at the low end of the range, and approximately 5 percent come in below range. However, he believes that once people understand range pricing, they are more apt to get above the bottom of the range.
“There’s no question that range-listed properties might take more effort, but quite frankly, that’s what we get paid to do. We are paid to negotiate,” Lund says. “If I get a price toward the lower end of the range in writing, 80 percent of the time, I will end up in escrow. A written offer is better than no offer.”
Schlecte says lack of training and fear of change has made VRM a hard sell with some consumers and practitioners. Case in point: Less than 1 percent of the approximately 470 associates in Schlecte’s market use value-range pricing.
How to Use Range Marketing
Still, before joining the 1 percent club, experts say make sure your broker has approved the use of range marketing as a sales tool in the office and do your homework.
While Prudential’s 80 preset ranges are available to any real estate professional to use as a loose guideline, there are no set ranges within the industry to price a home. But you should exercise caution in setting a range—selecting too narrow a range can undervalue a home and too high a range can price the home out of the market.
For optimal range pricing, Lund says make sure the high end of the scale is close to the seller’s dream price and use a 10 percent to 12 percent spread below the top price to allow for changing market conditions.
In markets where the local MLS doesn’t support value-range listing with its input form, some value-range fans use 876 (VRM on a telephone keypad) as the last three numbers in the price field to help identify the listing as using value-range marketing. The top price of the listing should be entered in the price field and information that the seller will “entertain” or “consider” offers within a set range should appear in the MLS remarks section, the listing contract, and on related advertising and for-sale signs. The 876 is a tip-off to practitioners and consumers that they can find a lower range to the listing price in the remarks field.
Responding to demand for a range option, San Diego-based Sandicor Inc. implemented value-range listing display and search capabilities in 1996. In September 2004, REALTOR.com adjusted its site to be able to display high and low price ranges for MLSs that adopt the listing practice.
Today, Sandicor CEO Ray Ewing says more than 50 percent of the database’s current listings are range-priced. Sandicor’s system doesn’t require members to use any specific value ranges (Prudential’s list, for instance), but it doesn’t allow too broad of a range (i.e., from $0 to $350,000).
Critics argue that range-priced listings degrade MLS searches, but Ewing says the impact of a few additional parameters has been negligible.
Negligible or not, Allaire’s sticking with tradition. “We would rather have the property priced correctly, according to what the market says, and let people make offers,” he says.
Shepherd says salespeople need to get educated and let consumers make an informed choice. She believes practitioners need to conform to the way buyers and sellers want to shop.
“It doesn’t matter if we want to change,” Shepherd says. “The world around us and the way people buy and sell real estate is changing. And we need to be aware of that.”
The Lund Team—Value Range Marketing
Broker Carlton Lund’s Web site provides detailed information about value-range marketing and how it works. You’ll find the latest news coverage on the topic.
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