There are times when this strategy is applicable. Particularly in the case of REOs when the agent needs to move the home quickly for the investor. If the seller has a timeline then pricing the home slightly under market can bring in buyers quicker.
Most of the time, homes offered significantly under market waste a lot of paper, a lot time, and can either create a lower offer than fair market or a false offer value that is destroyed by the appraisal. There is some ego involved for the seller and agent that markets to low under market. They like bragging about how many offers they received.
Unless you are in a time crunch, your best chance to get the best value for the home is to place the value right at market. Any good agent or savvy buyer will know the comps for the area and will not over pay. Delaying the time line because a "high" offer created through a bidding frenzy is a waste.
The seller is not required to sell the home. Be clear with your agent regarding the lowest price you will accept and understand how commissions are paid based on what offers are presented. I agree with Allyson to place a note in the agent comments regarding right of refusal.
Well there are a lot of opinions on this so let me add mine. I say run the comps and price your home lower but not to low, just enough to create that bidding war you desire. As pointed out you are not required to accept any bid, but it is kind of like false advertising and poor form. A way around this would be on the mls in the confidential notes you would have your agent say something like " the seller has the right to refuse any offer " that way there is no misunderstanding ( some reo listing agents do this for certain banks ).
I think that would be the best strategy to get your home sold quickly and at the best price available.
As always feel free to contact me with any questions.
I would recommend you order a Broker Price Opinion (BPO) with specific comps within 0.5-1 mile radius of the property you are selling. With Sold comps selected within the last 3 month in the range of 300 sqft of your property and similar floor plans and within 5 year age of your subject. You should be able to gauge the market with a well developed BPO. Keep an eye on the Days-on-the-Market since quick sales and close within 10-30 days mean the property was priced right. Be aware of the type of listing since if the listing was a Short Sale, it might been under-priced just like you're planning vs an REO and a regular sale.
An agent who knows BPOs, will be able to adjust for condition, age, and other amenities. We do these all day for our lending clients and we sell our listing at 98-110% of our BPO price which I have to admit is darn good.
Good luck with your sale.
You do not have to accept any offer!
So what do you do?
* Interview several local Realtors to help you â€˜rangeâ€™ your price.
* Request contact information from their past clientele. Not simple â€˜textimonialsâ€™.
* Choose one who provides 3rd party resource material as part of their pricing quote.
* Try to find a Realtor who is a BPO provider and request their BPO documentation.
Using these simple tips alongside a common sense marketing approach will help you price your home......AND you will have the best advice possible. read link below
Most of the 'Low Ball' listings I see are coming from Bank Owned homes. They are having some success but really it is more a factor of location and condition. If you have a great home and a great location, relative to the surrounding homes, then this strategy will most likely generate multiple offers. However, any buyer who is not all cash or putting greater than 20% down is at risk. In most cases on conventional loans the lenders will not fund greater than 80% of appraised value. So the entire offer must be considered. I have found that a reasonably priced home, given a great location and condition, will bring you less stress and a higher liklihood of closing.
While the tactic has advantages and disadvantages. The appraisers price properties for 90-120 days as appraised value, 0-30 day for quick sale, 30-90 days etc... Most follow that method to get most bang for the buck. It is never highly recommended to low ball your asking price as you receive mostly low ball offers. People are not serious just want to see if they can get a 99 cents deal...
Few agents will want to do that simply it disrupts his life. Often fax machines are out of paper, agents can not answer all the questions, and contracts are not carefully read and presented. This can be dangerous as there is no way to carefully read all the small writings and concessions people want seller to give away.
Also you need to analyze the market. Is it a dog or a gem? Is it a buyer or seller market. Who, what, when you try to target?
Expect for buyers to lowball your lowball price! Just be honest. I liked the answer that said you should do your comps and price just a tad bit lower to generate interest and the offers you are looking for. There is nothing sure in this market.
Best of luck!
I have a great listing in Santa Clara on Shafer Drive that got a great response by listing just below market value and we had several strong offers. Pricing it too low is not a good strategy for the long run. 1) you tick off your neighbors by lowering the perceived value in that area. 2) You may run into legal issues that can tie up your home for a long time (cash offer scenario). 3) You may never get the price you need to sell!
My suggestion: If you absolutely need to sell, do EVERTHING you can to prepare the home to outshine competition and impress prospective buyers. Secondly, price your home as competitively as possible without lowballing and you will certainly find the most qualified buyers ready to buy your home.
If you are just getting started I would be happy to swing by and suggest some improvements for attracting the toughest of buyers...
Keller Williams Silicon Valley
Pricing a home to sell is truly an art. Your agent will look at your home and compare it's condition, amenities, location, to what is pending and active and make a suggestion on price based on your ultimate goal and time frame.
Example. I had a listing with a tenant who ran a day care. The sellers needed to sell the home fast, with minimal impact to the tenant. This ment generating a lot of showings to qualified buyers in the fasted possible time. So we priced the home 6-7% under the most recent pending home and received 3 offers, the offer accepted was as-is and slightly above market. The tenant, buyers, and sellers were all very happy that it sold in less than 10 days and closed within 30 days.
It all depends on your home.
I consider the practice deceptive, but that's just me.
One point I haven't seen covered is: What if there IS a bidding war? As is noted below, often there isn't. But let's assume, for example, that fair market value of your home is $400,000, based on comps. And if you just listed it normally, you'd put it on the market at around $400,000.
But let's say you list it at $325,000 in hopes of starting a bidding war. And let's say you're successful and someone ends up with a bid of $445,000. You're delighted, of course, and you accept it. But there's an appraisal process involved. The appraiser comes out, pulls the comps, and comes back with an appraisal of $410,000. That's the most he can stretch the price up, based on the comps. Now you've got a problem. You have a buyer who may or may not be qualified to pay $445,000. But the appraisal's way below that. So instead of coming up with $82,000 down (20% down) plus closing costs, the buyer now has to come up with $117,000. Maybe he can. Maybe he can't. At best, the buyer probably will request that the price be dropped to the appraisal level--$410,000. Still a nice price, but it largely negated your strategy. And that $410,000 certainly will include a request that you pay the maximum amount of closing costs and seller subsidy. Bottom line is that even if a bidding war breaks out, it's very likely that the final sales price will be pretty close to what the house is actually worth.
And one other thought: If you price it too low, people will wonder what's wrong. Example: A while back, I was selling a manufactured home--2 bed, 1 bath, nice condition, good location. Condos of similar age with similar space were selling for $140,000. The manufactured home was priced at $16,000. Lot of people didn't call, figuring it was some sort of scam or gimmick. And of those who did call, their first question was: "What's wrong with it?" In this case, that was the real price. A nice family bought it--$2,500 down and payments of $200 a month.
So--just be careful if you put a "lowball" price on a property.
The banks have adapted their approach, and so should the buyers' agents/brokers. The banks--as we investors--are concerned about the bottom line: the numbers. Your observation that "they have removed the human element" is correct, but I disagree that this is a negative. The current market value is the current market value--no matter how beautiful or ugly someone thinks a property is. The banks are trying to use this gimmick to force buyers into a frenzy, and to get enough buyers to overpay forcing property values to go up. Perhaps buyers and their agents/brokers should adapt, and refuse to overpay (ie pay more than the current market value). If enough buyers' agents/brokers grew some backbone--some already have--and joined with some of us investors in resisting to overpay, then the banks will move on to another gimmick.
The strategy of "LOWBALLING" a listing may work to your benefit but may also work against you. As a Broker I've done the lower pricing before and it has worked on certain houses and it hasn't for others. Basically when you make a low ball listing you won't get a massive hike in the price during negotiations. I recommend listing the property at property value. The main thing is selecting the right "Realtor" that can market your home well. There are no surprises. By marketing your home at value, it sets the tone for the buyers actually looking for or within that price range. By lowering the listed price it attracts buyers who usually searches for their max price in terms of affordability.
A well marketed home is all you need to sell it at this current market. There are buyers out there, if your home is in good shape you shouldn't have a problem selling it. The majority of my listings at this point will only last no longer than a month.
You as the seller have a right to accept or reject any offer. If someone makes an offer that is not within your expect range than don't accept it. Don't feel that you need to accept any offer because the offer is in front of you. The right Realtor should be able to get a good offer based on market value. The market value of your home is very critical when you place your home for sale. It must be priced just right.
Let me know the subject property address and I can pull a comparable sale data to give you an idea what your property is worth.
Hope this helps,
Marc C. Yu, Sr., MBA, Broker
Realty World One Source
(408) 945-9600 office
(408) 945-9601 office fax
(408) 519-3759 pFax
Lowballing listing prices is a tactic that has been used for years with mixed success. It has recently resurfaced as the â€œtactic dâ€™jourâ€ for most REOs that hit the market in the Bay Area. Itâ€™s helped fuel the current frenzy in the Bay Area â€“ buyers see the low price and are attracted to the property like ants to a picnic. It has also caused a tremendous amount of resentment as buyers, thinking they may actually have a chance, have written offers and subsequently been blown out of the water.
This tactic has actually done a lot of harm to the local market â€“ check out this link to see what I mean:
Artificially Low List Prices Are Wreaking Market Havoc: 6 MAJOR Emerging Problems
You asked the following:
Q: Is it a good strategy to list my home at a very low price to attract prospects and start a bidding contest?
A: It will get a lot of attention, no question. Everyone wants to get a bargain. As for a â€œgoodâ€ strategy, there are two sides to this. At worst, itâ€™s a deceptive practice because you more than likely ARE NOT willing to sell for the advertised price. There are "bait and switch" overtones to this. At best, in the current market (and if your home is in the lower half of the market), it will more than likely create a bidding war that may end up getting you a higher price than would normally be probable. Keep in mind that banks have many properties on the market at any time and can afford to entertain low offers. The law-of-averages works in their favor. They also can afford to â€œtake it in the chopsâ€ on a single listing if they donâ€™t get higher offers. Homeowners with one home to sell donâ€™t have this advantage. However, we do see this practice all the time.
Q: What if someone responded with my exact amount in cash with no contingencies? Would I be required to accept that bid?
A: You are not legally required to accept any offer. Your listing is an â€œofferâ€ to sell, not an â€œobligationâ€ to sell. In the same way, a purchase agreement is an â€œofferâ€ to purchase and is not binding until signed by all parties.
HOWEVER â€¦ as mentioned below by Guy, you must have a carefully crafted agreement and understanding with your listing agent. Once the listing agent fulfills their contract with you, they have earned their commission. Seller beware.
My recommendation is to sign the listing agreement with the agent at real price based on CMA, then you can list at 5% below market price.
You will sell it at Market price Guaranteed. Also call me and ask me about 99 days sale guarantee and other benefits to list with me.
What I've done is put the property in the MLS on Thursday night so it pops up on agent hot sheets on Friday. Make sure your agent shows in MLS agent comment section that you will review, but not respond in writing to offers (for a period of 3-10 days) at which time you will determine if an acceptable offer is on the table. If not, raise the price as you wish. If you do get the offer you want, accept it. Even if you get a cash offer at the lower listing price, you won't be obligated to accept it. However, make sure you listing agent is aware and makes a special notation of this in your listing agreement. Otherwise, you may be obligated to pay the agent even if you don't accept the offer and never sell the home.
I think we should be careful in pricing your house if you under price your house
meaning if Mr X making an offer for cash offer you should accept this offer or
else else you are in trouble. My recommendation is to get a CMA the agent
will tell you the market value of that property and decide what price you want
to put in the market.