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There are 3 basic pricing strategies for residential properties, Aspirational, Market and Below Market.

The following is an excerpt from a Compass internal email sent by Leonard Steinberg of Compass and written by Robert Bland - a Compass manager from Manhattan (and a Yale graduate).

There are 3 basic pricing strategies for residential properties, Aspirational, Market and Below Market.

1. Aspirational: Aspirational pricing is generally successful in a Seller's market when they want to 'shoot the moon', attempting to obtain a price higher than market comparables dictate. This is a reasonable strategy in a tight market when buyers are pressured into overpaying for a property because they feel that if they don't buy now, the price may be driven up even higher and then soon will be out of reach. Conversely, it's not a winning strategy in a soft or declining market when there are predominantly unmotivated or few buyers. The other factor to keep in mind, especially for mid-level properties, is that the higher the price, the smaller the available pool of buyers.

2. Market Price: Market price is the price or value of the property as determined by recent sales of similar, relevant properties in the immediate area of the property. This is the most commonly used method and is the one that will most likely result in the property selling quickly. The downside to this strategy is that sometimes the market price doesn't capture the exact mood of the moment and, unintentionally, may not be the highest price a Seller might obtain. The solution to this is to arrive at the best estimate and add a small percent, just in case the market is a bit stronger or has changed since the last comps came out. Remember, comps are often a month or so behind so they are not perfect gauges of the market on the day of pricing.

3. Below Market: Below Market pricing is generally used in a Buyers' market when there are more properties on the market than buyers and a seller would like to differentiate the property from the pack. The method is to offer the property at a price significantly below what similar, relevant properties in the immediate area are selling. This can be a great strategy to employ to generate activity and interest. It's also sometimes used in a balanced market (a market where the absorption rate is around 6 months for the existing inventory) to generate interest. The reasoning behind it is that its intention is to generate interest in the property, therefore attracting many buyers who will submit multiple offers, therefore driving the price up by encouraging multiple bids. The downside to this method is that if the market is weaker than expected and no one bids on the property, it's extremely hard to try and raise the price back to market comparable level after it's been exposed to the market at a lower price.

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