More and more I am seeing the technique of purposefully underpricing a listing in order to create an artificial bidding war. It is a very tempting pitch from your listing agent, but don’t fall for it! They may want you to underprice in order to sell your home quickly and to move on. Their goal might not be to net you the highest amount. And it doesn’t work, in my opinion.
Example (ass described in the video)
Listing 1, our listing. $429,000, sold for $432,600 or 101% of list.
Listing 2, not ours. $399,000, sold for $433,000 or 108% of list
One might initially think listing 2 did better. However, #2 was listed a month after #1 went Under Contract fast (so they should know that it went near full price, and newer listings in an up market tend to ask for about $2,500 more). Listing #2 was nearly identical, but two floors higher plus a fireplace. Two floors is about $6,000 in value, a fireplace, maybe $2k. Yet they only got $400 more on a place worth $8,000 more. The result of underpricing to create a bidding war… a loss of $7,600-$10,000 in value. Oops!
Why doesn’t it work? Bidding War Exhaustion ™,is what I call it (see Video at minute 4) . Buyers have a mental block for going over a certain % above list. Even though I frequently tell buyers to ignore the list price. Why take guidance from the listing agent who might not have a clue about the area.
IGNORE LIST PRICE! (sometimes)
I would rather you bid up a place $10k over list on $20k underpriced home then bid down $50k on a home that is overpriced by $80k. And for those of you that say “Oh no way man, I’m not getting involved in a bidding war” you REALLY need to talk to me. If you don’t want to buy this year because you think it is a bubble 2.0, that is fine, I wont argue (don’t miss the blog post “Lose $40,000” the moment you buy a $500k home).
But if you are going to buy in the near future, that approach may cost you money. What, you are going to do? Wait until the NEXT house hits for $10k OVER the post bidding war price of the one you lost? Well that one will get bid up too, and you might be $25k worse off.
More buyer DC area bidding war tips here including one crucial tip only supplied if you email me directly, or via a comment.
– Don’t underprice. A bidding war might work, but I don’t believe you will get higher than if you priced properly and went up from there. Also underpriced homes really tick off buyers and the agent, and you don’t want a ticked off buyer on the other side of the table. Forcing people to buy, rarely works (but was necessary when I got a properly priced $499k place bid up to $601k in the Bubble 1.0).
– It almost always takes at least 2 buyers to sell a home. One to low ball and one to get the other off the fence.
– Don’t believe ads that guarantee a bidding war or show stats that on their face might seem impressive. When in doubt, send them to me. If it is the real deal, I will tell you and probably recommend you go with them!
(more bidding war tips for sellers and a video here)
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Written ghostwriter-free by: Frank LLosa Esq. who is never too busy for you, just email me.
Principal Broker for FranklyRealty.com
Attorney at Law, only in NJ and the above is not legal advice, in part because you didn’t pay me.
p.s. Anybody want to see me make a horrible attempt at a real estate rap video? Stay tuned.