When you want to sell a house, you set an asking price. This seems straight-forward, but real estate professionals understand there is an importance of setting the RIGHT price.

Let's look at a bit of the psychology, and the strategies that can be used when setting the asking price.

Psychology

What message is being sent when someone sees the asking price of the house?

1. It attracts certain buyers and it repels others

There are buyers at every price point in the spectrum. A higher price will catch the attention of higher end buyers (while it repels low-end buyers) and a lower price will attract the attention of lower-price buyers (while it repels high-end buyers). There’s nothing wrong with this – after all, you don’t want to waste your time trying to sell your house to someone who has no intention of buying. So the right asking price can be used to help the right buyers see your house as a desirable purchase.

2. It reveals information to buyers

The price of your house, in comparison to similar houses, will reveal information to potential buyers. For example, if you live in a neighborhood where the average sale price is $200,000, and you’re asking $150,000, what does that say to buyers? It says that your house may need some work or you’re in a hurry to sell. And what if you live in that same neighborhood but ask $225,000? It might say that your house is superior to the other houses because of how you’ve decorated it.

Strategy

All home sales are negotiations between the sellers and the buyers (and the agents that might represent them). There are many different strategies that can be used when setting the asking price, and some of them will be dependent on the actual condition of the property. 

1. Set a lower price to start a bidding war

It is no secret that buying a home is an emotional process. When people use emotion, it is hard to think logically - this can be used to the advantage of the seller. If you have a house you are going to list where the comps would place it at $255K, instead, you could list it at $235K. In many cases, this could put an incredibly desirable house on the market that has the appearance that it is going to be a real steal for someone. People will see this and jump at the opportunity to buy the house at a discount. At this point, the people have already committed that they could see the property as their home and will have some type of attachment to it. Here you can force buyers to come back with their highest and best offers. You could easily see the selling price going over the home value, and also may be able to get some contingencies removed.

Keep in mind, as I mentioned above, the strategy is dependent on the condition of the property, so if the house needs significant work, this could back-fire as the number of potential buyers would already be limited. 

2. Set the price just below a boundary to show to a larger audience

Setting the price just below a price boundary can increase the audience size. For example, many people will set a price cap on the property as they either don't want to pay more than a certain amount for their home, or they can't afford it. People are typically much more strict on the upper boundary than on the lower one (although, many agents can attest to wasting time showing people homes that they knew they couldn't afford), as they know that buying some houses just aren't possible. If we took the example above and instead of setting it at $255, set it at $245, it would be viewable in the range of anyone looking for $250K and below. Here you grab a portion of buyers that may have set a cap at $250K. They may not be able to pay over $250K, but in a bidding war, it is another competitor that could push the final buyer higher.

So, just how important is the asking price when selling a house?

It’s rare for a house to sell at exactly the asking price. The asking price puts a piece of information out there for negotiations to begin from. Using psychology and the right strategy for the chosen asking price are important to getting the best price when selling a house.