A Questionable Real Estate Practice - The Dark Side of Value Range Marketing

In past articles I have professed that to stay ahead of the pack we must look for creative solutions in our business. While I hold true to this conviction I have recently been reminded that some “creative solutions” can also damage our industry and mislead the very clients that we long to protect. Recently I represented a friend, client and college in the purchase of a home. During our search were exposed to sales tactic known as Value Range Marketing or VRM. VRM is gaining in popularity with some real estate agencies and entering some main stream sales agencies.

What is Value Range Marketing? In value-range marketing, the seller sets a price range (i.e., 399,000 to $450,000) instead of the desired list price of $450,000. The idea is to attract buyers looking for homes in the lower range of the advertised price. A home listed at the seller’s desired list price may not meet the buyer’s price criteria so the idea is to generate more offers, and ultimately draw a higher sales price on the home. However, the strategy does not obligate sellers to accept any offer. VRM allows sellers to entertain and counter offers within the range with an acceptable price and terms, just as they would with a listing advertised with a single price. VRM can only be used appropriately if the seller is truly willing to sell their property at all prices depicted within the range.

Is Price the Only Deciding Factor of an Offer? Many terms make up a contract. Examples of terms are the time frame in which the buyer will close on the property, loan financing conditions, inspection contingencies, appraisal contingencies on so on. Typically the strongest offer would be a closing that ideally lines up with the seller’s time frame and offers very little contingencies to terminate the transaction. A cash offer with a waiver of financing would be an example of one of the strongest offers.

Value Range Marketing Goes Bad: Some may argue that there is a purpose for VRM. Used correctly one would logically assume that given ideal terms the seller would accept the lowest price in their range. However, in many cases neither the seller nor the listing agent has any intention of selling that property at the lowest price proposed. When this occurs the term Value Range Marketing becomes synonymous with “Bait and Switch.” The idea is to lure in a purchaser under false pretense in order to “bid up” their offer to an acceptable number. While negotiating for the home the buyer is letting other opportunities pass by, perhaps the last weeks of a lease are coming due, most likely they are getting emotionally involved in the transaction. In the end most buyers can’t come up with a “cash deal” on the home or waive all conditions and they are told it is for that reason that the lowest suggested price was not acceptable.

But Does it Work? A professor of finance and real estate at the University of Texas in San Antonio named Ron Rutherford co-authored a study on range pricing published in The Journal of Real Estate Finance and Economics. Rutherford’s study used a sample of 5,852 homes (176 of which used value-range pricing) sold from January 1999 to December 2000. Finding indicated that range-priced homes took approximately 4 percent longer to sell and sold for about the same price as fixed-price homes.

How do we deal with Value Range Marketing? With the knowledge that there is clear misuse of VRM in the market the advice for a client is clear. Completely disregard the noted price range. Proceed with the offer as you would any other offer. Don’t allow yourself to be lured in by the promise of a low price. The range noted on the property is a completely irrelevant factor. It does not speak to value and it certainly does not obligate the listing agent or the seller to meet that price even while all other terms in the offer may be ideal. Find the price that you are willing to pay and negotiate toward that end. It is our duty as participants in the commercial enterprise and as stewards of our industry to conduct ourselves in a way that our actions promote ethical and sound business practices. We must not succumb to tricks and false promises. Maintain your home so that it will show in best possible light, market furiously and determine your price based on the market data and your personal level of motivation. While I do not subscribe to the practice of VRM I understand how some are compelled to cut to the chase and use this as a sales approach. For those who intend to use this system honorably and who will stand by the terms as they are set I wish you the best. However, I call to your attention the Dark Side of Value Range Marketing. While you are working so hard to put yourself in a position where you can stand up and deliver on what was promised in an advertisement there are others who are tearing down the credibility of the very strategy on which you are hanging your hopes.

Contact us for more information about Uptown Charlotte Real Estate

T. J. Larsen is president of My Townhome Realty—a professional real estate brokerage firm that specializes in condominiums and townhome real estate. If you need assistance with buying or selling real estate, call them at 704-377-4567.

Search our website to find out more about us, view available properties in our online database that is updated daily, and/or request a market analysis of your property. Please contact our agents with any questions about buying, or selling a condo, townhome, or loft.