Are You Price Confused? 3 Strategies Sellers Are Using Now

By: Dana Gain

Are You Price Confused? 3 Strategies Sellers Are Using Now

Tags: real estate predictions, real estate this year, real estate in 2022, how real estate will look this year, how real estate will look in 2022, january 2022, january market results, january real estate, january real estate market, halton, halton region, oakville, milton, burlington

What’s up with the list price? Just when home buyers were adjusting to the idea of underpriced homes selling to multiple offers (and preparing accordingly), the landscape shifted again. 
Rising interest rates have already started to calm the real estate market. This is directly affecting how sellers are pricing their homes. 
The first interest rate increase in February was quickly followed by a second sharp surge in mid-April. A third hike is expected in June, perhaps as aggressive – or more – as the fifty basis-point rise that happened earlier this month.

The goal of course is to reduce inflation, but the housing market is affected too. More and more first-time buyers are being pushed out of the freestanding home segment and looking to condo apartments to start their climb on the property ladder. 
This cascade of consequences has made home sellers re-think their pricing strategy. Let’s look at the three most common approaches being used right now by home sellers.

Strategy 1: Pandemic Pricing
We’ve coined the term ‘pandemic pricing’ because it’s the method most current house hunters are already familiar with. It started in the late spring of 2020 as the effects of the pandemic were underway and it continues today.
This strategy has a seller listing their home for sale at a price well below market value. An offer date is set, and the seller waits for all the bids to arrive at the scheduled time. The intense competition from the multiple offer environment pushes the sale price higher, resulting in a final sale price tens – or hundreds – of thousands over asking price.

Offers in this environment are typically ‘clean’, which means there are no conditions standing between the accepted offer and a firm sale; they are one and the same. Buyers are encouraged to secure draft deposits in advance of offer date, so they can demonstrate their absolute commitment to buying the home. 
This is the most common strategy we’ve seen in the hot seller’s market of the past two years. It’s been employed steadily in most market segments including detached, semi-detached and townhouse. And starting around November 2021, the condo apartment segment too.

Strategy 2: The Mask is Off Pricing
We’re calling this the ‘mask is off’ for two reasons. One, because it seems to have started about the same time we removed the mask-wearing mandate. And two, because it has a seller pricing their home at very close to market value.

For those that remember how sellers were pricing their homes before the pandemic, you will recall a listing price that was within ten or twenty thousand dollars of the price a seller expected to receive for their home.

This is a more comfortable environment for home buyers. One could shop online in a price range that fit the budget, and there were very few surprises. Sometimes homes would sell for a bit less than asking price. Other times they would sell for list price, and occasionally a home would sell for slightly more. 
What’s important to note is that the variations were very small. Depending on the condition of the property and the motivation of the buyer, a $900,000 home in Milton could be listed for $899,000 and sell for anywhere between $875,000 and $920,000.
Today, that methodology is finding its way back into the market. In late February and early March of this year, home sellers began bucking the pandemic pricing trend, opting instead to list their property at or around estimated market value.

The result? By March of this year, the same house in Guelph with a market value of $1.4M could be listed in two very different price ranges. One, pandemic pricing for $1,099,000 with a set offer date, and another at $1,399,000 by a seller who would review offers any time.
And if that were not already confusing enough, a third strategy has appeared.

Strategy 3: Hybrid Pricing
This is the latest pricing iteration that seems to have started in the past few weeks. It’s a hybrid of the first and second pricing model.
But first, the rationale.
Sellers still want to have buyers fighting over their home. Those that are particularly close to market trends realize that the rise in interest rates may create a headwind for the pandemic pricing approach. Maybe it’s too aggressive to underprice by so much when interest rates are climbing and buying power is falling, they think. 

Sellers don’t want to scare off qualified buyers.
At the same time, these sellers are not quite ready to open the kimono and advertise what they expect to receive for their home by listing it at market value. 
Their solution, therefore, is to price the home under market value and accept offers any time. In this way, sellers do not signal to the marketplace that they are way underpriced by holding offers back.
But the underpricing in this model is not as aggressive as with pandemic pricing, so it still appears to a home buyer to be priced close to market value. 
You will know you’re dealing with this scenario because the home is typically just a little too perfect for that price point. 

For example, in the $1.4M Guelph property illustration, a home seller employing this strategy might set the list price at $1,299,000. Buyers will instinctively know that it’s a great deal, but because the seller has not scheduled an offer date, buyers may believe it’s priced at market value.
What happens next? Buyers rush to put in an offer on the home because it’s such a good deal. Of course, it’s still underpriced and so this creates an atmosphere of competition for that home, which is ideal for the home seller. The home also sells very quickly, often in one or two days, and with few if any conditions.
In effect, you have created the foundation that will lead to multiple offers, but without the aggressive underpricing and offer date.

What Do Buyers Need To Know?
In all three pricing approaches, the home is selling at market value. What is market value? It’s defined as the price a reasonable buyer would pay for an identical property.
In short, market value equals what a reasonable buyer would pay. This can be determined by reviewing the recent sold price of similar homes in the neighbourhood.

Thus, regardless of the strategy a seller uses, the home in Guelph from our example will very likely sell for $1.4M if that is what similar homes are selling for in that neighbourhood. It might sell a little faster or slower depending on a seller’s pricing strategy, but the result is likely to be similar.
However, for home buyers it certainly makes for confusing shopping. It may be difficult to discern whether the home you like is priced high, low, or somewhere in between.
The good news is that your REALTOR® can do the research for you so you understand the likely sale price of the home before you ever go and view it. If you haven’t yet decided who you will be working with on your home sale or purchase, get in touch with us today. 
Our research is thorough and highly data-driven, so you will always be prepared regardless of what’s happening in the market.***

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