“Wishful thinking, propaganda and ploy”

From the New York Times:

The Psychology of Pricing

IN a market where buyers and sellers circle one another warily — each certain that he or she is being taken advantage of, no matter what the conclusion of a deal — the asking price of a property is rarely a straightforward reflection of comparable values. While comparables may be a starting point, the price at which a seller offers a property is often also based on wishful thinking, propaganda and ploy.

Buyers, in turn, parry by deconstructing the price. They aim not merely to assess a dwelling’s fair value but also to plumb a seller’s bottom line and vulnerabilities. How a price tracks with similar properties, how large and hasty any reduction is, and even how parsed or rounded a number is — all these are grist for concluding, rightly or not, whether a price is firm, desperate or a sign of painful dealings to come.

Or even a sign of delusion.

Despite whispering advice like courtiers into the ear of a monarch, brokers say some sellers have delusions of grandeur, stemming from a failure to grasp that what they want for their home has nothing to do with what it’s worth.

“Most of the time a seller will start to talk about what they want, and I will say, ‘I don’t care — don’t tell me,’ ” said Andrew M. Phillips, a senior vice president of Halstead Property, who teaches classes on pricing to Halstead agents. “I will do my analysis and come back to you with quantitative information.”

Even when the seller and broker reach an agreement on a home’s value, it is often wise to adjust the asking price downward, and not just because buyers like bargains.

An equally compelling reason to fly low is to adhere to psychological “break points.” These are dollar thresholds that buyers are most likely to select as the top amounts they are initially willing to spend or to use in Internet searches.

(“Initially” is the key. Once buyers set foot in a house or apartment and make an emotional connection to it, they are more vulnerable to budget creep, by which a $25,000 increase can be rationalized as a little bump of $30 or $40 a month in the mortgage.)

Major break points occur at $500,000, $1 million, $1.5 million and so forth. Smaller ones occur every $100,000 and then at every $20,000 or $25,000. So, for example, if the market value of an apartment is around $610,000, brokers generally advise sellers to round down to $600,000 so that the property lands within a buyer’s budgetarily myopic field of vision.

Still, sellers are almost certainly at a disadvantage if their price towers over comparable properties’. Prices of more than 5 percent over the market will probably have a chilling effect on buyers, said Confidence Stimpson, a senior vice president at Stribling.

Sellers who think that buyers will simply show up and make their best offer do not understand how the market works. “The challenge is getting buyers to see it in the first place, because their broker is doing the search at $5 million, and you’re at $5.2 million,” Mr. Peters said.

The buyers who do see it, meanwhile, will be disposed to make negative comparisons with better endowed dwellings in the same price range. Even apartment hunters who like the place may shy away from making an offer at what they believe is a fair, but lower, amount.

“They feel like they’ll be rejected,” said Mr. Lake, “and they don’t want to be financially embarrassed.”

Sellers who have priced too high can still salvage the situation. Brokers say they must act quickly — ideally within a few weeks — and make sure there are buyers around to take notice. (“In July, a one-bedroom price drop will get activity, but a Classic 6 probably won’t because families are away,” Mr. Phillips said.)

Second, to be effective, the lower price must tempt a whole new group of buyers, which means slimming down to at least the next break point.

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3 Responses to “Wishful thinking, propaganda and ploy”

  1. BENDIN says:

    Sellers’ market in sight?
    Posted by the Asbury Park Press on 02/18/07

    “Fourth-quarter numbers compiled by the Otteau Valuation Group for Monmouth and Ocean counties were even worse than those provided by the Realtors association. In Monmouth County, the median price of a home fell 7 percent, from $445,000 to $416,750. The median home price dipped 6 percent in Ocean County, from $340,000 to $320,000.”


    pass this around …

  2. curiousd says:

    thats for spotting BENDIN. we are keeping our eyes on monmouth/ocean.

  3. curiousd says:

    THANKS for spotting, that is…

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