Thursday, January 7, 2010

What is “Value Range Marketing, VRM, price range marketing

What is “Value Range Marketing, VRM, price range marketing
I brought the first buyer that successfully closed a “price range” listing on 8/16/1995.

Range Pricing started in San Diego and San Diego has remained the stronghold. Some other MLS’s do not allow it.

I use price ranges for sellers when, and how, it makes sense. It works well in the right circumstance but it can be confusing for the inexperienced agent or the homebuyer.

Conventional thinking for many buyers is “Why would I offer more than the low end of the range?” That is a valid question. I always recommend that buyers use the range pricing as a search guideline only. Then place their offer according to the comparable prices I provide. Same thing with the bank owned properties. Some banks are pricing properties 10-20% below the comparable sold prices and letting the buyers bid them up to market value or above.

Bank owned listings almost never use a range (only 23 of 7078 in the last 6 months). Since much of the lower end inventory was bank owned, we did not see ranges as much. Now that prices are going up, and bank inventory is dropping significantly (only 696 active bank owned house or condo listings as of today in all of San Diego County out of 7456), we see more regular sellers entering the market, along with investors selling their flippers. Both groups are more likely to use price ranges.

The Value Range Marketing good: More buyers will see the listing.
If the property is worth at, or a little above, a big round number such as $300,000, the seller is in a quandary. If it is priced $10K above that round number, say $320K, most buyers who only want to spend $300K will not see it. If they price it lower, they are afraid they will not get offers over asking, to where the actual value is.

The Value Range Marketing bad: Not understanding how it works.
1 - Agents that have too big a range…20% or more on each side. $240K to $360K. Get real! Are you a professional or not?
2 – Too small a range. $10,000 spread on the range. $270K to $280K
3 - Range pricing top just under the big round number: $270K to $299K
4 - Weak agents that can not convince sellers of the real value of their property. The agent knows the home will sell for no more than $400K but the seller thinks it is worth (or seller needs to get) $500K. Therefore, $400K to $500K range.
5 - Ineffective pricing: having the bottom price range just above the big round number such as $305K to $330K. The low price probably should have been $299K.
6 – Agents who do not know how to properly explain how range pricing works.

Where you ultimately end up closing in relation to the high and low price with a range listing is dependant on what the range pricing is, compared to the market value of a home and how the range is used.

In the “hot” market, I would call the listing agent and ask, “Do we have to be over the high range?” Often the answer was yes because the market was moving up so fast.

From 2007 to Feb of 2009, as prices dropped, more offers were accepted under the low range price. That is changing now with the low amount of inventory under $500K

I just checked 100 range price listings of the 362 sales within the last quarter over $500K and they sold as follows: 27 under, 61 within & 14 at or above the high range.
The under $500K was similar: 14 under, 64 within and 23 at or above the high range.

Ultimately, every situation is different for the buyer and for the seller in what their goals and negotiation strategies are.

The MLS states “The seller will entertain offers between low price and high price”.
If you offer near or under the low price, the sellers says ”That is entertaining, now lets start negotiating”.

Call me so we can meet your Real Estate Goals for 2010.  The opportunities are there!


Dennis Smith, ABR, SRES, e-PRO, CDPE, Realtor® DRE# 00476662
Certified Distressed Property Expert
RE/MAX By-the-Sea
Formerly with Taylor Place Real Estate
Buy or Sell a Home with Me, Use my Moving Truck - F R E E for life.
760-436-0087, or cell at 760-212-8225

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