SELLERS FIND IT DIFFICULT TO SET A PRICE IN A VOLATILE MARKET

A year or two ago, pricing a house was simple. Sellers only had to look at what their neighbors were charging, add 10% and wait for the bidding wars to begin.

Now that the market has grown uncertain, homeowners are at more of a loss when deciding what price tag to put on their property. So in an attempt to attract buyers, some sellers are experimenting with non-traditional strategies for setting prices. Approaches include starting high and cutting the figure every few weeks, dropping the price to a different bracket to attract new shoppers or giving a range of numbers rather than one set figure.

Golledge House, Bradbury, Calif.: Advertised a range between $1.198 million and $1.298 million, to reach more buyers

Home-sellers are trying these strategies as real-estate markets across the country continue to send mixed signals. Listings are on the rise -- they are triple last year's levels in parts of Southeastern Florida and five times higher in Phoenix. In Washington, D.C., home builders are dumping inventory and undercutting existing home prices by offering rebates on closing costs or outright discounts. Overall, home prices are growing at the slowest pace in two years, though they were still up 12.5% in the first quarter from a year earlier, as measured by the Office of Federal Housing Enterprise Oversight. In some affluent places, like Palm Springs, Calif., and Palm Beach County, Fla., single-family home prices have flattened or declined.

A changing market can especially highlight the flaws of traditional pricing sources, including Web sites that list comparable home sales and estimates from real-estate agents. Agents may quote too-high prices to get listings, for one, and some Web sites have too few recent listings (within the last six months) to be useful. And while banks can access automated appraisal tools to determine prices, mostly used in calculating a home-equity line of credit or loan, consumers generally can't get those numbers.

When times are slow, most agents recommend setting a price that's just at or 5% below the market. Yet not everyone takes that advice. Below, a sampling of four unusual pricing strategies.

A Range on the Home

When Eleanor and Simon Golledge put their Bradbury, Calif., home on the market in April, there were hardly any local listings for comparison. Their rural town has fewer than 1,000 residents, and many of the homes, including theirs, were custom built. So instead of naming a price, the Golledges (who are selling the home without an agent) settled on an asking range. On a for-sale-by-owner Web site, they say they will "entertain offers" from $1.198 million to $1.298 million.

Ms. Golledge, an accountant, says she got the idea from local brokers, who often use price ranges. It almost worked. The couple, who paid $770,000 for the house two years ago, has received three offers near or below the low end of the range. They accepted the highest, for $1.2 million, but it fell through on a seller's contingency. (The Golledges had a clause in the contract that they needed to find a home they wanted to buy within a certain time period. They didn't.) They're hoping for another offer that's closer to their high number.

The practice, sometimes known as "value range pricing," first came into use in Australia in the early 1990s and was adopted by some California brokers soon afterward. There are scattered adherents throughout the country, but it's not widely practiced.

Broker Carlton Lund in Carlsbad, Calif., has used the approach for a decade, and almost all of his listings now come with a range. "It's all about widening the pool of buyers and getting them to the table," says Mr. Lund, who suggests a spread of between 10% and 12%. He says that about three-quarters of the homes he works with typically sell at the upper end of the range -- though that has dropped to half in a slower market recently.

Marcus Allen, a professor at Florida Atlantic University and co-author of a related study published last August in the Journal of Real Estate Finance and Economics, hasn't seen a clear benefit. After researching the sale of 6,000 homes in Texas, he found that using a range increased the amount of time it takes to sell a home by 5%, and didn't have an impact on final prices. He calls it "a novelty pricing strategy."

Slashing Early

Two weeks ago, Rita and Daniel Davis put their three-bedroom Craftsman bungalow in Minneapolis on the market for $284,900.

A week later, the price tag was $279,900.

Cutting the price is common practice -- just not so quickly. In Minneapolis, sellers generally wait 30 to 45 days before making a reduction, says Mary Leizinger, a real-estate agent who is working with the couple. The fast drop wasn't due to unfamiliarity with the market. Before they listed their house, the couple had visited seven others for sale nearby. They discovered that many were similar to theirs, and worse, there was something for sale on every block. By cutting their price within days, the couple hopes to send a message that they're flexible. "We're between a rock and a hard place," says Ms. Davis, a businesswoman.

Rob Cohen, a real-estate broker in Boston, thinks the strategy could work, especially given that the market price is often a moving target when sales are slow. He also understands that sellers might want to test the waters with a slightly optimistic number, to get the best possible deal. However, he always prefers to set a home's price at or below market and hold for a while. "This isn't a business of hopes and dreams," he says.

Ms. Davis isn't sure if it will pay off either, but the couple still has room to negotiate. They bought their place 35 years ago for $17,900.

Slashing Often

In February, Jonathan Hinkle, a telecommunications account manager, put his five-bedroom home in Lansdowne, Va., on the market for $1.35 million. He purposely set it high and cut the number by $50,000 a few weeks later -- and continued dropping it by $50,000 every few weeks until it reached $1.05 million. Mr. Hinkle, who bought the house two years ago, says that's close to the lowest price at which he can afford to sell.

Hinkle House, Lansdowne, Va.: Dropped from $1.35 million to $1.05 million in $50,000 increments

He heard about the idea from a real-estate agent who had used the tactic before. "The market is so volatile, this seemed a good strategy," he says. It required some patience; he says he didn't get any serious shoppers until the price fell to $1.1 million. However, all were lured away by nearby builders, who recently began underwriting closing costs, buying down mortgage rates and giving away such things as $500 gasoline cards and three years' worth of paid electric bills. (The practice is growing more common. A study by the National Association of Home Builders shows that more than half of all builders are throwing in incentives to sell homes, up from a third a year ago.) Mr. Hinkle, who wants to buy a newly built home nearby, has used that to his advantage: He asked the builder to discount the new home so he could take less on the old home. The builder agreed.

Playing With Blocks

Buyers tend to think in price blocks -- a habit that may be reinforced by the Internet. According to a study conducted by the National Association of Realtors last year, eight out of 10 buyers begin their home search online, meaning that they see homes only in the price parameters they enter into search engines.

Houston real-estate broker Melinda Noel says the span often depends on the price. Buyers tend to look in $20,000 to $25,000 increments for homes under $500,000, in $50,000 increments for homes between $500,000 and $1 million, and in $250,000 increments over $1 million. She has counseled sellers to set a price at the top of a break point, and then jump down a whole notch if the market doesn't respond -- say, from $749,000 to $699,000. "The goal is to hit the top of the market, without going over the edge," she says.

Cincinnati professor John Bryan tried to price his home carefully. He surfed through local listings online and then waited until May, when real-estate sales are traditionally strongest, to put it on the market. (He bought a new five-bedroom home in January, a slow month for sales.) He finally set the price at $324,000.

He received one contract, for $307,000, but that fell through. He has just lowered the price to $299,900, even though he may lose money on the deal after closing costs and commissions. (He bought at $250,000 in 1998 and added $56,000 in renovations, including a new kitchen, air-conditioning system and landscaping.) He hopes the new price will bring his listing to the attention of a new group of Internet shoppers. Mr. Bryan says he is disappointed that he had to drop the price so low, but he thought it was the best solution. "I'm trying to break a psychological barrier," he says.

-- July 03, 2006

By June Fletcher

From The Wall Street Journal Online