I think there is.
Under-pricing in search of multiple offers and a potential bidding war is a time-tested technique, but sellers need to be careful not to turn buyers away with a silly list price…
New day, same old strategy.
Your house is “worth” around $600,000, right?
Well don’t price it at $600,000, or even $599,999, which in itself is a strategy invented by those Madison Avenue geniuses a hundred years ago.
Price it at $549,900, and hold back offers! Get everybody to the table at once, and see who among the group will pay $635,000 for your $600,000 house!
It’s been done before, and then again. Over and over for a decade. We all know the drill.
The real estate bears will have a field day with this post, as they have with every one like it, but multiple offers are a way of life in the Toronto market, and when it comes to single-family homes, I don’t foresee a day when the best houses cease to command interest from multiple parties.
But a new trend is on the horizon, one that has helped many buyers to actually benefit in this crazy market!
It’s called “pricing too, too low,” and it’s completely backfired on the sellers that should have never entered the fray in the first place.
Here’s the logic:
There are many buyers, perhaps most buyers, who wouldn’t get involved with a listing if the property is listed at $1. No matter if that property is worth $400,000, or $1,000,000, nobody wants to get involved in that “mess.”
That’s the best word to describe it – a mess. I’ve heard it been called a “melee” as well, or more accurately, a “game.”
When a seller prices at $1.00, you know a few things for certain:
1) They’re either exceptionally strategic, or completely irrational and illogical.
2) They’ve likely tried to sell the property before with a more conservative approach.
3) They don’t want to play by anything resembling “typical” rules.
4) They’re unstable, and could blow up the whole process at a moment’s notice.
The last point, in my opinion, is probably the most worrysome.
What’s to stop these people, having listed at $1.00, from getting a dozen offers, taking none of them, and then relisting the property tomorrow at $799,000, or whatever is the equivalent of 115% of fair market value? Nothing, really.
So let’s split the difference here; forget about $1.00 listings, and forget about pricing at fair market value, or slightly below to try and entice multiple offers.
Let’s look at where under-pricing goes wrong, by under-pricing too much.
A lot of people will say, “Selling real estate in this market is easy, just under-price, set an offer date, and get more than fair market value.” But it’s not that simple.
Take the case of a house that is worth, say, $600,000, or maybe $615,000. What should you list that house at in order to get the most action?
It’s not $1.00, and it’s not $600,000.
Is it $549,000? I’d probably say, “Yes.”
But what if that house were listed at $489,900? Then what?
Should you expect MORE interest, given that there would be a ton of interest at $549,000?
Some people think so. Some people think, ‘The lower the price, the more of the buyer pool that see the listing, and the more people that will make an offer!”
But at what point is the price so low that it will scare away buyers?
At what price will buyers see little to no difference between the list price and a list price of $1.00?
I recently ran into this situation with an east-end house, as described above.
A $600,000++ house was listed at $489,900, probably because the listing agent and seller figured, “The lower the better!”
We saw every penny of $600,000, but figured it was worth more. A colleague of mine took her own clients through and said, “That’ll be a gong-show on offer night. I’m thinking $650-plus.”
We planned for the worst, hoped for the best, and drew our line in the sand. We’d go to $605,000, but that was it.
On the day of offers, I was surprised to know that my offer was the first one registered, at about 10:00am.
But 2pm, there was only one other offer.
And by 7:00pm when offers were presented, it was just the three of us.
I was shocked, as were my clients, and my colleagues with whom I discussed the house all day.
At $489,900, we wouldn’t have been surprised to see 10-12 offers. At that price? For that house? How could there not be?
My colleague who quoted the $650,000 valuation said it best, “Nobody wants to play ball.”
And she’s right.
Buyer after buyer went through that house, looked at the laughable $489,900 list price, and said, “This is so insanely under-priced, it’s going to be a giant mess on offer night. Count me OUT!”
And with only two offers competing with us, we offered $570,000, and got the house by a hair.
Of course, we don’t know the other two offer prices, but in a private conversation, the listing agent said, “All three were over $550K, and all three were really close.”
All three buyers probably thought the same thing: “Why is there such little action on this house?”
The answer:it was priced too low.
What does it say about the property that it only received three offers? A cynic will say, “Maybe it’s not nearly as valuable or popular as you think it is.” But I don’t think that’s the case. What if this property had 50 showings? What if it had 100 people through a weekend open house? Then what do you make of it?
In a buyer’s mind, the $489,900 list price was too low to make any sense of, and it may as well have been listed at $200,000, or $1.00. Buyers assumed that the sellers were looking for an all-out bidding war, and I’d have likely agreed.
In the end, my buyers and I were ready for every situation, except the one that happened. We never, in our wildest dreams, thought there’d be only two competing offers for a house that was priced about $150K under market value.
We lucked out, plain and simple, and as I told my buyers, “This is an opportunity to pay less for the house than you were prepared to pay yesterday when you assumed there’d be 10-12 offers. You do NOT need to offer your max price.” In the end, I don’t imagine we got the property by more than a few thousand dollars. We were willing to risk losing the property in order to potentially save $30K from what we identified as our “max price.”
I heard from a few colleagues who asked, “How did that house only sell for $570,000? I thought it would go way, way over $600!”
So did I, so did my clients, and so too did the seller and the agents.
But the house was priced too low, and it scared buyers off.
Many buyers out there in today’s market don’t want to play games, and this looked like it would be more of a tournament!
There’s a fine line between “strategic pricing” and “scaring people away.”
Who knows, maybe one day we’ll return to a market where (gulp!) houses are actually priced at fair market value, with offers any time!
Wouldn’t that be something?Back To Top Back To Comments