How do most buyers begin their search for a home? Price. They become pre-qualified with a lender so that they know how much they can spend. This maximum figure is quoted to the Realtor, who enters the number into a computer and all the homes at that price are returned. That is the way it's worked for years and the way it will work in the future. Or is it?

Is using the listing price really the best means to qualify the buyer's search for homes? And is list price the best way to market a home? Few homes sell for their actual listing price. Depending on the market conditions, homes may sell for substantially lower, slightly lower, slightly higher or significantly higher than their listing prices. Wouldn't it be smarter for the buyer to shop in a range of prices to see where they can get the most house for the money. Isn't it smarter for sellers to offer a price range instead of a listing price to attract more buyers?

More choice is the foundation of a new concept in residential real estate marketing called range pricing. Range pricing allows Realtors to search for homes for their buyers by entering a list price into the MLS database at the top of an established range. When the search results come back, the homes include listings that are low to high for the buyer. Homes listed by sellers who are willing to entertain lower offers are flagged.

Range pricing offers advantages for everyone in the transaction. The advantage for the buyer is a bigger marketplace. The advantage to the seller is more buyers considering their listing. The advantage for the selling agent is performing one search instead of several. Even the listing agent comes out a winner.

Most agents will agree that one of the biggest challenges in dealing with sellers is getting them to be realistic about price. Given sellers' propensity to insist on higher asking prices than the market will bear, range pricing offers the listing agent a new negotiating tool. By asking the seller if they would be willing to entertain lower offers, the listing agent is able to list the home at a price that pleases the seller without eliminating buyers who are qualified to buy the home but not looking at homes in the seller's range.

Range pricing has its supporters. Financial expert and author Rick Edelman, The New Rules of Money, HarperPerennial, advocates range pricing as smart new tool #17 in his popular bestseller. In San Diego, Prudential has piloted a program called Value Range Marketing(tm) which is designed to introduce buyers to a wider range of homes to consider than they would normally be exposed to through MLS searches. Bob Watson, national training director for Prudential is responsible for the success of Value Range Marketing (tm). He says that the program, which has been included in San Diego (Sandicor MLS) database, is a marketing tool, not a pricing tool. "It is a change in the marketing. I look at the comparables for a home - $175,000, $180,000 and $168,000. Then I come up with a list price based on the comps, sq.ft, etc. What we do with value range marketing is we establish where it will sell and establish a list price - $189,900. We'll list your home at $189,900 so we include value range marketing in all the ads that the seller will entertain offers in this range $159,900 to $189,900. By marketing in a range I have satisfied my need. At $159,000 I am lower than the comps - at $189,000, I am higher. It ties in all the comps and what it is going to do is offer the home to people in that range. Someone who is searching for a home at $169 or $170 will look at the home even if they will not go up to $189,000. With value range marketing, the home lists at one price in the computer, and in the remarks section, the agent puts that it is a value range property and that the seller will entertain offers between the range prices." Russ Bergeron, general Manager of the Southern California MLS says that he will introduce the program with the cutover to his MLS organization's new Internet MLS system.

"One of the arguments for its implementation is that it gets extra exposure on the MLS system because you in fact are doing two searches," explains Bergeron. "For example: Let's say a listing is entered into the system with a price range of $140,000-170,000; if you search a price range of $160,000-$180,000 this listing would match; if you did a a search on $130,000-150,000 this listing would match," he explains. "Another argument is that it allows an agent to better price a house that may be unique, custom, or for whatever reason doesn't have adequate comparables."

Bergeron points out that the program is not without its headaches - namely, adopting the MLS database to range pricing. "Some of the concerns are: How do you determine a full price offer? Will the double search cause degradation in MLS system performance? How do you track the information in the system?"

"The directions are to enter the high end of the range as the traditional List Price, with the low end going into the other price field. All statistics and reporting features will continue to use the high end as the list price," he says. The high and low fields will match 80 ranges computed by Prudential that will also be duplicated on a hand held paper wheel which spins to the various ranges. Realtors can use the wheel in listing and buyer's presentations.

Although Bergeron will be implementing range pricing according to Prudential California Realty's specifics, he insists that the feature will be available to every Realtor if they choose. Otherwise, the MLS would open itself to accusations that it is warranting franchise-specific marketing plans, a problem he was warned about by associates at Sandicor.

"What happens when the next franchise wants their marketing gimmick installed in the system? Eventually the MLS becomes just a marketing tool and not a database any more," Bergeron says.

According to Leana Edic, treasurer of Sandicor, the system inspired other controversies. "We don't hear too much about it any more, but some agents just want a clear price. They didn't want the reports to be influenced by a variable range. If they pull information from the database, it skews the statistics. They would either have to pick a price or go with the top or bottom and make a decision. So it was confusing for some agents."

Implementation may be a headache for system designers, but it could be a boon to Realtors, since it appears to enhance the way most Realtors work anyway. Most Realtors, for example, suggest to a buyer that they consider homes in higher price ranges than their approved amount because of the possibility that the seller may be willing to take less than the listing price. Range pricing would give buyers fewer reasons to balk. The would also be less likely to assume that the Realtor is trying to raise the price to get more commission. But, critics say that it may provide too much of a crutch for listing agents who have trouble negotiating with sellers over listing price.

"One danger of real estate is overpricing the home," says Watson. "This program helps keep it in check. If I can convince you to list the home at $194,876 and we are going to market it at $169,900 you will get more Realtors looking at it. Buyers are more willing to make offers because they aren't as intimidated."

Citing the program's advantages, Watson says that Prudential has seen clear results, enough to keep campaigning for it. "Homes price at the top 25% of the range, sell as much as much as five times faster, and opens up a larger buyer pool to the seller."

"The misconception is that it is a bait and switch, that you are fixing the price, but marketing the home in a different range. For Realtors who are having problems with it, they should make their remarks clear that the seller will entertain offers in this range."

Watson also encourages agents to work on their negotiation skills. "One of the things we forget to do is we don't do updates on our skills, we update for continuing education, but not for selling skills. The Realtor is the intermediary, and it takes pretty proficient negotiation skills. Value Range Marketing opens the door to negotiations."

Published: August 9, 1999

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