What Does A Price Range Mean?
What Does A Price Range Mean?
Recently while travelling in my car with a lovely new client, her question to me prompted my thoughts about the various insights I could offer. As she cast her eye down our inspection itinerary, my price column featured a few quoted price ranges, (as opposed to price tags).
“This property is advertised at $390,000 - $410,000. Why would I offer a cent above $390,000?” she asked. It was a fair question when I considered how I’d feel if I was buying a mass-produced product or a grocery item. If my supermarket shelf had a price on the proprietary brand 250g tasty cheese shelf stating $3.50-4.00 and allowed me to make an offer within the range, I’d surely offer $3.50 because the shelf proves that I could select from over a hundred other identical products if the offer was rejected. The absence of hundreds of buyers competing with me at the same shelf also confirms that my low-end offer is not an unreasonable approach.
However, when it comes to established property, things are quite different. It is very difficult for buyers to find multiple identical alternatives, let alone hundreds. Buyers who care enough about making an offer on a property understand that the property is not easy to replace if another buyer comes along with a higher offer.
So in the face of buyer competition, how valuable is the quoted range? For a private sale, it signals the range in which a vendor is prepared to consider an offer. Buyers know that at some point in the range the vendor will accept the offer in the absence of competition. They see the range as an indication of the vendor’s expectation and price at which the vendor is prepared to sell for an offer with acceptable terms.
Quoted price ranges get interesting in certain situations and circumstances though, and it is a valuable lesson for buyers to consider when it is appropriate to pitch at the low point, midpoint or high point. In some situations, buyers should even consider making an offer outside of the range. Here are some examples;
- When the buyer has done their homework and feels that the pricing is too high based on recent comparable sales they may present an offer below the range, accompanied by a list of comparable properties for the agent to discuss with the vendor
- When the property has been on the market for a long time and the vendor’s motivation to sell increases, a lower offer can be a clever tactical move
- When the buyer is aware of competing buyers, feels that the property’s price range is lower than comparable sales suggest, they can submit a strong bid that shuts down the sale process and eliminates other buyers from having time to compete
- When the agent has made it clear that they will sell the property on the basis of ‘best and highest’ method, and the comparable sales suggest that value sits above the quoted range, a buyer should move forward with a confident, strong offer following their research and due diligence.
In other circumstances though where the buyer’s research supports the price range figures, other approaches need to be considered as follows;
- When the property listing is brand new and the property is perfectly suited to the buyer. In this situation, it would be wise to consider the risk of competition if an offer is considered and rejected by the vendor in the hope of receiving a better offer from a competing buyer. In a Seller’s market, an offer at the bottom of the range in the early days of the campaign will be unlikely to secure the property
- When the buyer’s terms introduce risk for the buyer (ie. finance clauses, building and pest inspection clauses etc), or their desired settlement terms don’t align with the vendor’s plans, the buyer needs to factor in this risk and consider compensating for it with a higher offer, particularly if competing buyers are lurking close by
- When the buyer has very attractive terms (ie. short settlement, unconditional offer), they will have the confidence to make a sharp offer.
My travelling companion’s question was also met with an explanation of how a professional negotiator would handle such an offer on behalf of their vendor. Agents are trained to deliver the best possible offers to their vendors, and quote ranges do often enable them to maximise an offer in ways that a single stated price won’t. An agent could position a vendor’s stance, or competing buyer’s offers against the original offer received and effectively negotiate a higher offer within the range. Some buyers may be resistant to such efforts, but unsurprisingly many skilled agents can entice a buyer to increase their offer with some tactical efforts.
Price ranges are just that. Not a guarantee of a purchase and not always an accurate guide, but certainly an indication of where they’d like the buyer’s initial offers to fall within. Doing comparable sales analysis and being realistic about the strength and appeal of their own terms is the first solid step a buyer can take before making an offer.