In setting price, give yourself 'wiggle room'


November 22, 1992|By ELLEN JAMES MARTIN

The house is a charming 70-year-old Cape Cod in Ellicott City with the solid oak floors, built-in cabinets and black-and-white checkerboard bathroom tile. When the military family priced it for sale recently, they made sure there was a little bargaining space left.

"We wanted some wiggle room," says the wife.

Rather than price the home at their bottom line, $160,000, the family listed it for $165,000. That way they could entertain a bid lower than their asking price without going through their own floor.

While pricing a house well above the competition is a poor selling strategy because you can scare many potential buyers away, giving yourself a little "wiggle room," as the Ellicott City family did, is a prudent plan, real estate specialists say.

"You want to give yourself some flexibility -- you don't want to lock yourself out," says Kathie Robitz, editor of "Your American Dream Home," a book on buying, selling and owning a house, published by ECV Media in Englewood Cliffs, N.J.

Not only do buyers expect a little padding in the price of a home, but they'll be psychologically reluctant to purchase a property if they can't "bargain down" the seller somewhat -- given that buyers' markets now prevail in most communities.

"Buyers need to know they've gotten something from you. By upbringing, you learn your whole life that you don't pay full price for a house or a car," explains Tim Knoblock, who sells real estate through the Silver Spring office of Coldwell Banker.

For the seller seeking to price a house correctly, while still allowing room for negotiation, the experts offer these suggestions:

* Don't price yourself out of the market -- even with the wiggle room.

"Don't go overboard," advises Ms. Robitz.

She and other real estate specialists suggest that you list your house at no more than 2 to 3 percent over what you honestly believe to be its fair market value. Some say there should be no more than $5,000 worth of negotiating room in your price -- even for an upper-end home.

You want a thin layer of padding between your asking price and what you would ultimately accept -- so that you could respond to a buyer's counteroffer and still stay above your bottom line. A thin layer will allow you to negotiate, but a thick layer will frighten buyers away.

How do you know your home's true market value? The best way to estimate this is to ask your realty agent to give you data on other like home sales that have closed in the last six months. Then add a little bit of wiggle room.

A good test of whether you have priced your property competitively is whether the place attracts lookers. An absence of showings could be a strong signal that you've out-priced the market, Ms. Robitz says.

* Beware of your neighborhood's "price barriers."

Whether you live in a modest working-class community or the ritziest part of town, there are probably some psychological "price barriers" at work there. Whether the barrier is $50,000 or $1 million, there is likely some level that most buyers shopping in your area will be unwilling to exceed, says Mr. Knoblock, the Silver Spring agent.

"Usually price barriers come in nice round numbers," Mr. Knoblock says. List your home above your neighborhood's price barrier -- even by a few thousand dollars -- and many prospects will scratch your property off their list.

During much of the 1980s -- what Mr. Knoblock calls the "fat, dumb and happy years" -- people would borrow to their upper limit to purchase a home. But these days, with real estate values more iffy and many families tightening belts, many homebuyers are operating under self-imposed limits, Mr. Knoblock says.

* Break the "wiggle room" rule if you're in a great hurry to sell.

It's not a popular strategy, because it can cost you money, but nowadays some sellers are choosing to go to market without any wiggle room in their price. Perhaps property is moving slowly in their community or they have an urgent reason to sell -- such as a financial crisis, divorce or company transfer.

"Some smart owners out there actually elect to underprice," Mr. Knoblock says.

To underprice means either that you go to market with a price equivalent to what like homes in your community have actually sold for in recent months, or that you price even lower than that figure.

"Mr. and Mrs. Seller: If you really want to expedite the sale, the lower the price, the better," Mr. Knoblock insists.

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