Transparent pricing, aspirational pricing, and motivational pricing
- Transparent pricing refers to the seller’s intention of offering the home for sale at a price that the seller is willing to accept. It’s what the seller believes to be fair market value.
- Today some homes are priced with aspirational pricing, which means what the seller aspires to get.
- Other properties have motivational pricing, or what I like to call mirage pricing. That’s an unrealistically low number used to obtain more offers and push the ultimate sale price higher.
Aspirational pricing usually results in homes that either don’t sell or that only sell after price reductions and at a price lower than would have been obtained with more realistic pricing.
Motivational pricing causes confusion for many buyers, especially if they are new to the market, or uneducated about that home’s neighborhood or the market, or those who are either discouraged or unrealistically hopeful about today’s prices.
Transparent pricing is supposed to be more honest about the seller’s wants, needs, and expectations.
Most of the time, new construction offers transparent pricing. However, sometimes there are so many upgrades that buyers will want that the final price can be considerably higher than the base price.
Sometimes, though, when a listing agent describes the price as transparent, it’s actually on the high side and is likely closer to aspirational pricing. In those cases, the label really only tells you the seller’s willingness to sell: “I’ll sell if and only if I get my price”.
How can you tell if the listing amount is realistic or too high or too low?
If you have just begun to house hunt, it won’t be easy to identify the list price as high, low, or just right. You can check the online portals to see their automated valuations. The best one, in my experience, is the Realtor.com home value tab which shows with most homes for sale. It normally provides pricing from three sources: Quantarium, Core Logic, and Collateral Analytics. You may also want to check Redfin and Zillow. Those are all easy to access and don’t require logging in.
Some sellers are overpricing their homes, insistent that they will sell only if they are paid the same amount they’d have gotten at the top of the market. There are always overpriced homes for sale, and it’s a seller’s biggest temptation most of the time, but right now it may be more than is typical.
With the market softening right now, these automated values may be too high or too low, of course. Better is if your agent calls the pending sales which are similar to try to learn something about the price and terms. Sometimes the listing agents will help at least by hinting. Some won’t cooperate at all, but that is not typical. Realtors in Silicon Valley are generally a friendly, helpful group.
Another good resource is Altos Research, which utilizes list prices (not sold prices) by city or zip code. At the bottom of the page you can see what a typical house in 4 different price points might sell for. There’s also a condos tab! Check out this Altos Research weekly data for the 95124 area of San Jose (this zip code is about 95% in Cambrian and the rest, north of Foxworthy Avenue, is in Willow Glen).
With the Altos Report, if the bottom tier is averaging at X dollars for the list price, and the amount offered for a similar size home is 30% less, you know that you are probably looking at a price mirage or motivational pricing. Instead, if the house’s profile is far above the list price of similar properties for sale, you’ll recognize it as aspirational, even if the seller believes it to be transparent.
These are only broad generalizations and exceptions do exist. Perhaps the property has an inordinate number of issues, or conversely, it has been overimproved for the neighborhood. You may not know these types of things until you visit and also carefully read the disclosure package.
Something different about transparent pricing
With both aspirational and motivational list prices, the listing agent won’t volunteer in the MLS public or private comments that this is the list price strategy.
However, if the seller gives permission, the listing agent may write in the comments that this is transparent pricing. While that price could still be high or low in relation to true market value, it does tell you that the seller is willing to accept that amount.
It’s the rare seller who won’t take more, though, so if the home gets multiple offers, you can forget the list price as the winning bid – at least in most circumstances. In the last two weeks we’ve heard of and been involved with properties that had been languishing on the market and suddenly received multiple offers.
Sellers, if you have a transparent pricing strategy, it’s crucial that your list price is in line with the market now. Otherwise buyers may respond to it as they would an online “make me move” type of price.
Buyers, it’s varied out there in this transitional market. Some homes are priced way low, others at value, and still others are too high. For the overpriced ones, you can always make an offer and some sellers may accept. More likely to work is waiting until they take a price cut (or waiting until several weeks have passed at the current price.)
Benefits of realistic pricing (for sellers – on our popehandy.com site)