Frustrated by the East Bay’s Teaser Pricing? Why do homes list 20%, 30%, or even 50% below the ultimate sales price? How is a buyer supposed to know? Has COVID impacted this strategy? These are exactly what I talk about in this video.
1. What is Teaser Pricing?
The first thing you should know is that the price you see is part of the marketing strategy for the house than an indicator of a home’s real value. The goal is to drive eyeballs and potential buyers to the listing. Which can be incredibly frustrating because of the ambiguity of the homes value and a sense of high competition. Unfortunately, that is also why it work. It attracts buyers. It attracts you!
Picture this: you see a listing with a Teaser Price that is 20-50% lower than its actual sales price. Chances are, you would think it’s a good deal and want to go see it and potentially write an offer. The catch? So would a lot of other people.
Because people usually want what other people want, it causes everyone to operate in a scarcity mindset. If you really love the house and know there are ten other offers, you will be forced to compete and likely stretch your offer to the top of your budget. Unfortunately, so do the other serious buyers. This bidding war really drives the price up!
2. Example: “Montclair Special”
In Montclair, anything that is going to sell for up to $1.35M to $1.4M will often have a listing price of $995K. Why? The neighborhood attracts a lot of younger people, usually family-oriented and tech-savvy so they’ll most likely be shopping using their phones.
Shopping using your phone allows you to set certain criteria such as the maximum price, the number of bedrooms, the number of toilet and bath. Let’s say they set their price range to up to $1M for a 3 bed-2-bath property, this $995K listing with an awesome view then pops up. The would-be buyer thinks this is an awesome deal and goes to the open house (or socially distant tour now a-days).
In the open house, they saw a hundred other people who also seem to want the property! But because they’ve already fallen in love with it (and because people want what other people want) they’ll realize they have to compete with everyone else, and will come in with their best price. The simple act of everyone putting their best foot forward and then realizing they are tied or close to a few other buyers brings out the competitive side and gets them to dig a little deeper than they otherwise would have. Thus, the price gets pushed up beyond what it should have.
3. What happens if you don’t use Teaser Pricing?
Because the Teaser Pricing works when you employ it well, everyone in East Bay started doing it for fear of being overlooked. There was one instance in 2016 when a seller who worked with our team really did not like this strategy and decided to go with a more transparent strategy. They went on listing their property at $1.19M (it was worth about $1.2M).
However, the property sat for a few reasons:
1) Everyone at $995K looked like a way better deal
2) People overlooked it, and
3) It just wasn’t finding its way to a lot of people’s online searches that were capped at $1M.
What the seller did was pull it off the market, waited 30 days and place it back with the lower Teaser Pricing, and was finally able to sell it at just a little below S1.2M.
In the end, if they would have gone on with a teaser price like their competition did, they likely would have exceeded the $1.2M mark. One house cannot buck an entire market trend. For the East Bay market to move away from Teaser Pricing, it would take a gorup effort or a large market shift.
4. The COVID Impact
The onset of the pandemic brought a number of changes to every day life, including social distancing and quarantine rules. It also brought an abrupt end to open houses. Not being able to drive people into an open house to create a sense of competition coupled with the social irresponsibility of brining unqualified buyers into someones home saw an abrupt halt to teaser pricing.
This also meant that new strategies are now needed to get people to come out of their homes to check out a house, therefore, Teaser Pricing is no longer as effective. The online walkthroughs, videos, and photos became even more critical and then the experience a buyer was met with once they masked up and walked through the front door seemed to be even more critical than ever.
As businesses start to re-open and rules start to relax, there’s also a move back towards the Teaser Pricing Model so make sure to keep an eye on that.
My advice to everyone who’s looking to sell or buy a home in the East Bay Area? Be aware of what’s going on, especially regarding how the Teaser Pricing Model applies to your situation. Relying on your Real Estate Agent to ‘read the tea leaves’ regarding the difference between a home’s teaser price versus the real sales price is more critical than ever. This will really help you get a closer estimate of the real amount you should expect to spend, given the neighborhood that you’re focused on.
I hope this list has helped you. If I can give you more context on the process of buying your first home, please do not hesitate to reach out. My information is below.
Here’s to all your success!