Southern California Phenomenon

Tyson Lund

Real Estate Business Analyst

Next month, the starting gun will fire to signal the beginning of the 2nd quarter and the start of what is known in the real estate profession as the "summer selling season". This is the time when more homeowners list their property for sale and more homebuyers purchase than any other time in the year. Historically, Carlsbad home-sellers have achieved the highest percentage of their asking price in April, May, and June. So as more homeowners race to prepare their home to sell in the coming months, one decision will be of paramount importance: where should I price my home?

Pricing On A Range

If you have followed the San Diego real estate market, it is likely you have seen a property utilizing the range-price strategy. A concept that started in Australia, yet made its west-coast debut in Carlsbad, the technique calls for a property to be sold using a low and a high price, while the seller entertains offers between the range. Last year, San Diego hit a milestone when over half of the properties sold in the county used a range price; roughly 56%. 

Humble Beginnings

When the concept of range pricing was introduced in 1995, the real estate market was suffering from several years of slow sales. As available property outnumbered the number of potential buyers, Carlsbad home sellers looking to sell their property sooner than the 80 day average were faced with a tough decision: Should I price my home under market so it will sell sooner? In order to sell in 30 days, sellers in 1995 had to price their property below the market average of $250,000 for a 2200 sq.ft home and settle for a price of about $236,000 . When the first range priced home, a 2,280 sq.ft property in La Costa, sold in December of '95, it received full market value of $250,000. The home, however, sold in record time: 34 days.

Why Range Pricing?

Since a number of factors (seller motivation, buyer emotion, location, condition of the home, etc) go into deciding the final sales price of the property, it is difficult to state that selling a home on a range will automatically lead to a higher final price. It can, however, be proven that range pricing does shorten market time. Out of 42,449 single family home sales recorded in the MLS database in San Diego County in 2004, range-priced listings averaged 30 days on market in comparison to fixed priced listings at 37 days.

How Does This Happen?

As the Internet became integrated into the real estate process, properties-for-sale moved from phonebook sized collections, updated bi-weekly, to an easily accessible online database called the Multiple Listing Service (MLS). Several years later, the general public was given access and consumers had more power to search and research property. Then and now, consumers and professionals will use price as a basis for their search. For example:  A value range property that is priced between $500,000-$550,000 will show up in a search of a buyer who searches between $475,000-$520,000. If a the seller prices their home at a fixed price at $535,000, the property would not come up in the buyers search. As more buyers view and preview the value range properties, the added attention will generate more exposure to that property in comparison to comparable fixed priced listings.

Supporters of the technique say that the additional exposure has the potential to generate more offers, allowing more room to negotiate, which will ultimately lead a higher market price. Since competing buyers legally cannot know the price of competing offers, the presence of an offer, even a low one, may act as the catalyst in achieving a price above the prevailing rate. The Seller benefits by generating offers he may not have received due to the limitations of fixed pricing.

Exercise caution: Just as in fixed pricing, it is just as easy to miss-price a home on a range.

For more information Email Tyson at Tyson@LundTeam.com  or Call (760) 431-3338