Is it risky to 'underprice' a house?

weedyacresApril 2, 2011

In today's market, does it make any sense at all to underprice a home? Will it cause a flurry of showings, a buzz as realtors find out the great bargain available and hustle their buyers to see it quickly, as it won't last long? Will it create a bidding war as buyers bid it up over asking?

Or are offers over asking price a thing of the past? Will underpricing it just increase the probability that it will sell quickly for full asking price?

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calliope

Sometimes it makes people wonder what's wrong with it.

    Bookmark   April 2, 2011 at 9:24AM
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live_wire_oak

Most people who think they are "underpricing" their home aren't. Lots of them are still too high for the current market. Your comps aren't everything else that's for sale, it's the SOLD properties only. Including foreclosures and short sales.

    Bookmark   April 2, 2011 at 10:37AM
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chrisk327

I have heard from a realtor the same theory. sounds great. does it work... in some cases yes, in some no.

depends on the market, how under priced it is etc.

I would say if you underprice it and that is really underpricing it, as opposed to some people who think they are underpricing the house, you'll sell fast, probably cose to asking, but I wouldn't 100% say you'll get asking or more.

we sort of did that after having our house for more initially. it did create the flurry, it got us close to asking,but not asking. for whatever its worth, if we dropped to this level sooner we would have gotten more money. Its a long story, but my advice is to price it well the first time, maybe even a little low.

    Bookmark   April 2, 2011 at 12:45PM
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ottawavalleygardener

Are you willing to accept an offer at that price? It could get awkward if you turn down a full-price offer that you really think is too low.

    Bookmark   April 2, 2011 at 12:51PM
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kats_meow

We relisted our house early in March. We priced it well below what it had been listed at last year when the listing expired. Agents told us (and comps supported) that that price last year at the end had been a good price supported by comps. However, we wanted to sell quickly and elected to drop the price $37k to price the house at the top of the search bracket below.

Our great fear, of course, was that this would do nothing and not result in a faster sale or the buyer would still want a huge discount just on the theory that all houses are overpriced in this market.

Thankfully, neither fear came to pass. We received an offer with a few days of listing that was very close to asking price and quickly settled on price and closed shortly thereafter. We are so glad we did what we did.

    Bookmark   April 2, 2011 at 7:29PM
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amj0517

We're in a similar situation. We listed our house in the fall and all of the Realtor feedback has been positive. "The house shows very well." "It's priced right where it should be." etc., etc., etc. We've had steady traffic with people looking at the house and a few repeat lookers, but no offers yet.

My theory is that if all is true that we're hearing, then the turn-off may be that it is in a newer subdivision where development has been slow (although it has picked up since we've moved out). In fact, we hesitated when buying the house because of that fact. Now we're questioning if we should lower the price as incentive. Maybe a buyer could overlook the new-ness of the neighborhood if they feel like they're getting a great deal? Thoughts? Opinions?

    Bookmark   April 12, 2011 at 9:41PM
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maurenemm

Earlier this year, I saw a house deliberately underpriced. They had an open house right away and got lots and lots of traffic. I think underpricing probably worked for this house because it showed very well (newer, nice layout, well staged). I don't think I'd try underpricing with a house that doesn't show very well. This particular home could also be considered a mid/higher-end starter home and wouldn't be surprised if it sold to a first time home buyer.

    Bookmark   April 13, 2011 at 9:18AM
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brickeyee

Luckily RE agents are loathe to sue their clients.

If someone brought you an all cash, no contingency offer at your asking price you could owe your agent a commission.

    Bookmark   April 13, 2011 at 9:42AM
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azmom

It would work in a market when supply is low with lots of buyers are ready to jump in, and the outlook of purchasing a property is bright.

Now bargains are abundant, buyers are staying on the sideline due to not being able to get finance, not being able to sell their current homes, or are worrying about property price will drop further. This strategy at best will help selling the house quickly may be at a below market price.

    Bookmark   April 13, 2011 at 11:11AM
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amj0517

We're currently listed at $225,900 and our Realtor suggested that $220,000 would be low enough to get things moving. But I question if that is a low-enough reduction. What do you think? Should we go lower if we really want to be aggressive and get this place sold?

    Bookmark   April 13, 2011 at 11:19AM
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ottawavalleygardener

brickeyee, that's what I asked before... how could you turn down a full-price offer? I think you made the point better, in that you'd have to accept it, as you'd owe the commission.

From what I'm reading, lots of houses aren't being "underpriced", they're being "priced correctly". A truly underpriced house should generate over-price offers.

    Bookmark   April 13, 2011 at 1:13PM
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brickeyee

"A truly underpriced house should generate over-price offers."

No, it is liable to generate offers that at least start at the price.

I have seen buyers try to provoke 'bidding wars.'

It rarely worked during the boom, and is probably not going to work any better now.

The last time a seller trying the 'bidding war' stuff I withdrew the offer instantly.

    Bookmark   April 13, 2011 at 1:29PM
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terriks

We're currently listed at $225,900 and our Realtor suggested that $220,000 would be low enough to get things moving.

At the very least get your price to and even $225,000, so that you will capture all the buyers looking up to $225,000. By adding on the $900 you probably lost a lot of lookers.

Pricing just above a break point (often multiples of $25,000) is a bad idea.

    Bookmark   April 13, 2011 at 2:27PM
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amj0517

terriks - That's a very good point. I'm sure most people wouldn't search for a home in the $200,000 to $226,000 range...

    Bookmark   April 13, 2011 at 5:59PM
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periwinkle18

We priced our home 15% below the appraisal from Nov '09. People can definitely see the value in the home, and recognize that it is priced well, so we have had decent traffic. We received a couple of offers within the first month. Both were 20% below list price. It is a tricky market, because if you price too high it turns off buyers. If you price reasonably, people still feel they need to get a 'deal'.

    Bookmark   April 14, 2011 at 8:10AM
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kats_meow

Amj0517 -- See what the price brackets are that individuals (not agents) can search for on MLS in your area. For example if the price bracket was $200,000 to $225,000 then reducing to something under $225,000 would bring in a different group of buyers. On the other hand, if the price bracket was, say, $220,000 to $230,000, then you might have to go below to $220,000 to bring in new buyers.

    Bookmark   April 14, 2011 at 7:40PM
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amj0517

kats_meow: By "search MLS", do you mean searching realtor.com (or a similar site)? I know agents have a system they search, but I didn't know there was a system for individuals. We planned to list at $220,000, but will certainly go $219,900 to get a hold of more buyers if that is what the local brackets determine.

    Bookmark   April 15, 2011 at 2:36PM
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terriks

I would stick with $220,000 since you will catch buyers looking both up to and starting at $220,000. On Realtor.com you can put in any numbers that you want in their search feature, but other sites have drop down menus with predetermined price breaks, usually in increments of $25,000. So you are really attracting the same buyers whether you price at $219k, $220k or $225k.

    Bookmark   April 15, 2011 at 3:01PM
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