I wrote about Value Range Marketing a couple of weeks ago and then promptly received numerous emails from readers wanting more information on the concept. So in this column, readers' questions are answered in order to provide you with more information from agents who use VRM, so you can determine if it'll work to sell your home.
In San Diego, California, VRM is a common way to market and sell a home. But it is also being used in areas such as Colorado, Arizona, New York and even Canada.
VRM sets a dollar range that sellers will "entertain" or consider when selling their home.
Critics of VRM say that it confuses and frustrates buyers by making them believe that if they make an offer on a home within the price range their offer will be accepted. Those who back VRM say a range does not mean that a seller must accept the offer in that range. There are often considerations other than price that make an offer appealing to a seller such as a shorter escrow, no loan contingencies, etc.
"People say, 'This is so silly. You have a range and who would offer more than the bottom of the range. But what it does is it gets things rolling, it gets a deal rolling. A buyer will tell the agent, 'Whatever you do, do not go over X amount of dollars.' When, in reality, if buyers saw something that they loved, they'd be happy to spend it for the right house," says Joanne Fishman of Prudential California Realty in Rancho Santa Fe.
The main purpose of VRM according to the agents who use it is to increase visibility and encourage the written negotiation process.
Agent Ken Crosby explains that VRM helps to bridge the proverbial gap between buyer and sellers. "Buyers generally start too low on what they think they'll pay for a home … and sellers usually start too high on what they think they should get for their home. So you have a divide that needs to be bridged and the value range marketing does a pretty good job of bridging [that divide]."
Reader John from Philadelphia wanted to know how a home is marketed on the Multiple Listing Service using VRM if the carrier only provides space to enter fixed pricing.
Some Multiple Listing Services have already adapted their system to handle value range pricing. However, obviously, not all are set up for it. In a case where the input form only allows the agent to put in a fixed price, many agents use "876" which spells out VRM on a telephone keypad to denote that the house is being sold using value range marketing. For those agents and consumers in the know, the "876" indicates that a lower range can be found in the remarks section of the Multiple Listing Service. Agents will enter the top price of the range into the Multiple Listing Service price field, but in the remarks section, agents will specify the value range pricing that the seller is "entertaining." The value range pricing should also be put on the listing contract, and on all related for-sale signs and advertising for the home.
Some experts say to price the high end range close to the seller's dream price point while others say that the seller's dream price should be the middle range.
Either way, experts say that the best way to use VRM is to use a 10 to 12 percent spread below the high end and low end of the range.
Reader Dennis asks the question that most people want to know. He wants to know if in a buyers' market, where housing prices are falling, VRM will further depress prices.
"In a buyer's market a lot of buyers are just sitting around waiting for price reductions talking about how the prices are going to be falling, but [VRM] gets them involved more quickly," says Crosby who specializes in the Rancho Santa Fe area.
Ultimately, the value of a property is determined when the buyer and seller come together on a price. Experts say VRM is the tool to start the communication and negotiation price. They don't believe that VRM hurts or further deflates pricing.
Crosby says VRM encourages buyers to make an offer. He says when it's a fixed price, often buyers will look at that and say it's too expensive. But when buyers see the lower end of the range they will frequently see the value and at least write an offer. Agents also say that most buyers understand their first offer is typically a starting point that will be countered by the seller.
"So it encourages them to make an offer and sometimes [buyers] convince themselves to come up quite a bit from that bottom end range because they worked with the numbers and they think maybe [the house] really is worth more than that bottom number … and [buyers think] I might look a little silly coming in at the bottom end of the range so the [buyers] will actually come in with a stronger number," says Crosby.