Bait Pricing a thing of the past?
Many a frustrated buyer has experienced bait pricing, but in our opinion it is just as bad for sellers.
You are probably wondering “what exactly is bait pricing?” Bait pricing is where a false low price is advertised in order to attract more buyers. It comes with many names such as ‘Offers Over…’, ‘By Negotiation Over…’, ‘Price guides’ etc.
Lets say you are a seller and you want $300,000 for your property. Your agent suggests that you should advertise it as “Offers Over $280,000 as this will attract more buyers, and the more buyers you attract the better the price you will get…” (or something similar).
Of course it will attract more buyers – but think about it – it will attract buyers who can afford $280,000 (when you want $300,000). Why would you want to attract buyers who cant afford your price? It doesn’t make sense (unless of course the agent intends all along to talk you down in price).
Also, as a buyer, if you inspected a home that was advertised as “Offers Over $280,000 – would you make your first offer at $300,000? Even if you could afford $300,000, like most people you would probably offer $280,000 or less. Why? Because the lowest price you see will often become the most you want to pay.
Why is bait pricing bad for buyers?
Because most buyers have a price limit and they tend to look at properties at the the upper end of what they can afford.
For example, If you could spend no more than $280,000 you would probably look at property priced up to $285,000 or maybe $290,000 but is is unlikely you would be attracted to look at a home priced at $300,000.
So, a buyer who can afford around $280,000 inspects a property advertised as “Offers over $280,000” (thinking they can afford it). They get emotionally involved and excited about buying it. They make an offer of $280,000 and then are horrified to find out the seller actually wants $300,000.
They have just wasted time, energy and sometimes money (on building inspections etc) trying to buy a property they could never afford.
“Why didn’t they just tell us they wanted $300,000?” is a common statement from buyers. They feel mislead and don’t like it one little bit.
On 17th November 2009 the new Real Estate Agents Act will come into effect and change our industry for ever. Just one simple line in the new legislation should fix the problem of bait pricing. Clause 9.6 of the new ‘Professional Conduct and Client Care’ Rules states:
“The advertised price must clearly reflect the pricing expectations agreed with the client.”
Congratulations to all those who drafted this legislation – you have simply and clearly addressed the issue of ‘bait pricing’.
To all you sellers – if your agent suggests you use any form of bait pricing that doesn’t clearly reflect how much you want – we suggest you find another agent.
To all you buyers – if you are attracted to a property and then discover that the seller is expecting more than you were lead to believe – then please report it to the Real Estate Agents Authority. This is great new legislation that is designed to protect the best interests of consumers, however we need your help to really make a difference.
So is Bait Pricing a thing of the past in the real estate industry? We certainly hope so.
It will be interesting to see how some agents will try and get around clause 9.6. Our guess is that you will see even more “No Price” marketing (which will annoy even more buyers), but that is a topic for another day.
More information regarding the new legislation is available on the Real Estate Agents Authority website at www.reaa.govt.nz or if you would like a copy of the new Real Estate Agents Code of Practice – just give us a call on 03 688 9029
November 03 2009 09:14 am | New Real Estate Act 2008 and No Price marketing
Mike on 03 Nov 2009 at 8:16 pm #
Carl,
I agree I think this new act is going to clean up our industry. I have always hated price batting and also listings (although I have some) Price by negotiation or Offers.
The one difficulty I can think of is a mortgagee taking a property for sale under the terms of a PLN (Property Law Notice)when they don’t wish to market by way auction or tender and they can’t state a price under the terms of the PLN protecting the rights of the mortgagor.
Cheers
Carl Slade on 03 Nov 2009 at 9:06 pm #
Hello Mike
Thanks for your comment. That is an interesting point. I think that as long as the agent is not indicating to buyers that the vendor may accept less than they actually want – then it would not be considered bait pricing.
It has always intrigued me why banks can’t state a price? I suppose it is to make sure they don’t just advertise how much they need from the sale (when it is less than the property is worth)?
You could mount a strong case to suggest that banks would often achieve a better price for their mortgagee sales if they used the correct pricing strategy (instead of No Price marketing)and therefore are not protecting the rights of the mortgagee.
Alistair Helm on 04 Nov 2009 at 8:35 am #
Carl
It is great for this industry to be seen so publicly condemning a practice which you so articulately highlight is universally loathed by buyers and in theory should be by sellers.
From the website perspective we are looking at applying more stringent rules around price ranges that drive searches for “non price advertised properties”. Simply put we get far more emails on this issue than any other. However at the end of the day unfortunately we have to publish what we are given – so we hope we can appeal to the principled side of every salesperson (and manager) to apply the rules of the new Act to the letter.
Carl Slade on 04 Nov 2009 at 9:18 am #
Thanks Alistair
I’m interested to hear you get emails regarding this issue. Are they from agents or consumers?
I have seen a case recently where the seller has made it very clear to me that they are expecting $1.4 mil to $1.7 mil – however with their current agent it pops up on realestate.co.nz from $1mil – $1.3mil.
What rules are you looking to apply to try and address this?
Cheers
Carl
Ross Brader AREINZ on 06 Nov 2009 at 9:23 pm #
Good post Carl and great to see you are getting to grips with the voices layout.
I guess in future salespeople will have to only put a hidden range on adverts that reflects what the client will accept otherwise in the instance of the $1.4 – $1.7 listing you describe above then you could report the other licensee as these provisions would apply:
7 Duty to report misconduct or unsatisfactory conduct
7.1 A licensee who has reasonable grounds to suspect that another licensee has been guilty of unsatisfactory conduct may make a report to the Authority.
7.2 A licensee who has reasonable grounds to suspect that another licensee has been guilty of misconduct must make a report to the Authority.
Carl Slade on 07 Nov 2009 at 8:08 am #
Thanks Ross
Yes salespeople will need to be careful with their hidden ranges.
Personally I would rather the consumers figure this out and report it to the REAA than have agents running around reporting each other.
I think that the industry websites will need to address this issue. They will probably need to offer narrower search ranges.
Cheers
Carl
Ross Brader AREINZ on 09 Nov 2009 at 8:04 pm #
http://www.unconditional.co.nz/blog/the-issue-with-property-pricing.html
Your item has been mentioned at that link!
David on 13 Nov 2009 at 7:06 pm #
This may be an obvious question…
Are search ranges seen as pricing?
Until this moment I have never seen web search ranges as advertised price banding and the agents in my market certainly don’t see to be treating it as such currently. Is there a definitive answer from a legal eagle on the topic?
In my office, the receptionist most often sets the price band as part of the basic uploading of properties to the web. The agents want as wide as possible to capture all the possible permutations of buyers. It is about market exposure not about advertising a price range. Isn’t it?
David on 13 Nov 2009 at 7:14 pm #
what does one do as an agent when you can’t accurately predict what the market price will be. And please don’t go on about me the agent should know what the price is based on my experience blah blah. We are again in a state of flux regarding prices. I understand that the new act states that we should conduct an appraisal that accurately reflects the value of the property in current conditions, but our opinions of value are again being proved wrong on countless occasions as the market pushes up strongly.
Surely this is a scenario for no price marketing.
I am not trying to hide anything or be deceptive when I suggest marketing By negotiation or tell the owners to sell by Tender. I honestly believe that they will get best value from the market this way. And tell the owners that I don’t know exactly what they will achieve when they put their home onto the market.
Is this wrong?
Are we moving away from free market forces to a situation where agents or valuers influence the market by telling buyers and sellers what there home is worth rather than letting the market decide?
I certainly hope not
Carl Slade on 14 Nov 2009 at 10:57 am #
Hello David
Thanks for your comments. You raise some very good points and I will try and keep my thoughts a short as possible.
Are search ranges seen as pricing?
I think that regardless of what we as agents think, when a property does not state a price, the buyers will figure out the search range as a way to try and get some sort of price indication.
I understand that as an agent you want the search range as large as possible.
However, I believe that our industry needs to consider that by putting a wide search range we are potentially misleading buyers and entering the realms of ‘Bait Pricing’.
Lets say that you have a listing where the seller is expecting around $500k and a wide search range is entered to “capture” more buyers. A buyer that can only afford say $400k does a search for property in their preferred location within their affordability range – your property shows in that search. Do you think it is reasonable for the buyers to assume that the property is within their affordability and therefore they should look at it?
What does an agent do when they cant accurately predict what they market price will be?
Since you have asked me not to, I wont rant on about it being your job to know bla bla – however I must admit it was my first thought
I freely admit that occasionally we come come across a property that is almost impossible to predict where the market may pay. And in such occasions ‘No Price’ marketing should be seriously considered. What concerns me is that some agents seem to use this ‘excuse’ on every property they list.
Now I’m no economist, but in my opinion the market is very seldom not in a state of “Flux”.
It is either on the way up or on the way down. Look at a graph of any market (real estate, stock, money, interest rates etc) and you will see that it doesn’t stay static for very long. This is simply market forces in action.
Surely in the majority of cases we can find enough comparable sales to give a good guide of where the market is today and then adjust for where we think the market is going. For example, on a rising market you may put where you believe the realistic value is at the bottom of your range and adjust up. In a falling market you would put the value at the top of your range and adjust down.
If you “honestly believe that your clients will get the best value from the market” via ‘no price’ marketing then obviously you need to advise them of such. It just concerns me that many agents seem to believe what our industry has taught them without questioning it. Some head office trainer got up and told me auctions get the best price – therefore it must be true.
I may be wrong, and often am – however I believe their are often better ways for our clients to achieve the best value. But thats another topic.
Regarding market forces. The market will always decide what fair value is – stating a price will not change this.
When the market is rising – as long as the agent is competent – multiple offers and demand push the price up. We often achieve well over asking price. On a falling market lack of demand and interest force the price down.
Anyway, enough of my rambling. It’s great to see our industry having some healthy debate.
Kind regards
Carl