Pricing in the luxury market is trickier than in what might be called the “commodity home” market.
The more unique a home is the more pricing becomes an art than a science. As a ridiculous example in a post in March I used the an estate in Lake Tahoe pictured below that was on the market for $100,000,000. Nobody would believe that that nice round number would be the result of a careful appraisal by a licensed professional. Traditionally, pricing analysis whether by an appraiser or a real estate agent is based on “comps” or comparable properties that have recently sold. For properties such as this there are no comps. The most expensive home on the market in the Triangle this year was a home in north Raleigh that originally listed for $23,000,000 but that price was quickly dropped by $12,000,000. The listing has since expired with no sale.
The vast majority of homes in Durham that would price over $700,000 are not quite that unique and would warrant some analysis for pricing.
In this price range I would strongly recommend anyone contemplating selling their home to get an appraisal. This does not mean that you have to put the home on the market at the appraised value but it does give you a place to start.
There is now software available to agents that can construct an analysis based not just on a few sold comps but that also demonstrates the penalty of pricing too high. In most situations, the market will find the right price. Homes that are priced too high stay on the market longer and when they do sell, sell at a price that they would probably have quickly sold for if priced that way initially.
Heresy
At the risk of being drummed out of the real estate fraternity, I’d suggest that the pricing of a luxury home in most cases is the least important factor in the marketing mix or the marketing plan. As the examples above suggest, they were priced as a point to begin negotiation. Few luxury buyers are really spending their last dollar to acquire a property. There is some truth to the axiom that if they have to ask the price, they can’t afford it. Buyers in this segment are looking for something more than a bargain or simple shelter. They will instead be concerned about something else, maybe a fabulous golf course, maybe a mountain vista, maybe history, or in some cases buyers just want to show-off. It was not an oversight that the marketers of the Tahoe estate did not price it at $99,000,000. Read Robert Frank’s new book, Richistan, A Journey through America’s Wealth Boom and the Lives of the New Rich and you could easily imagine buyers who would brag their latest estate purchase cost 9 figures.
Much more important than the price in marketing a luxury property is being able to position the property to appeal to a specific segment. Do all the analysis to strengthen your bargaining position but concentrate preparation on establishing and demonstrating the value that makes whatever price you set appropriate.
