Question Details

Natalia Hals,  in Woodbury, MN

Purposely Pricing Below Market to Create Bidding War...

Asked by Natalia Hals, Woodbury, MN Sat Feb 28, 2009

How risky is this? I have been in a lot of bidding wars in the last few months, with mostly banks' listings, but also some traditional sellers and their agents are using this method. Keeping in mind that this isn't a game, and I want the sellers to feel like they got the most that the market will allow and to sell within their time frame, as they really need to sell and there is a lot of competition out there.

Have you ever used this method?
When would you used suggest this method and with what seller personality?
Has it ever come back to bite you?

Anything other suggestions you want to add...

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Answers

6
Daniele, thank you for answering early to this question, I appreciate it.

I respectfully disagree with the seller deriving their own value. Specially in light of the challenges of the market. Most seller's aren't savvy and/or removed enough from their own homes to determine a marketable price.

With regards to this market, regular listings are competing with falling prices on short sales and REO's. To list the home at market value of above it is the wrong approach in 99% of cases. Right now, price just below the market as some have pointed out and market the fact that this is a 'regular' transaction and not an REO.

Finally, Natalia..to answer your final question. Yes...it will bite you if you are pricing the home at or above market value but you're under the impression that it is under. So make sure you're well researched and you practice your listing strategy before the listing presentation.
Web Reference: http://www.hugotorres.com
0 votes Thank Flag Link Sat Feb 28, 2009
Natalia:
Tony has given a great, succint answer to your question. Personally, when I sit with a seller to discuss their situation, I will price the home anywhere from 2-5% below the current market value in that area at that time. I do this purposely to generate the traffic to MY seller's home first and not to the competition's homes. Normally when I've applied this method the seller is in a "short sale" situation. By pricing below the MV, I am able to get the house to closing faster which in turn relieves my seller of the stress they're in. You need to approach each situation separately and determine if this particular pricing method is in the best interest of the client. Like Tony asked, please keep us posted. Great question.
Tina Evans, Broker
Luna Realty Group
tina@tinaevans.net
Web Reference: http://tinaevans.net
0 votes Thank Flag Link Sat Feb 28, 2009
I've noticed more and more banks taking this position with respect to foreclosed homes andit seems to work OK. IMHO the reasons they are starting pricing lower are twofold :

1) they want to sell quickly - every month the home sits on their books they lose $$ and take up asset mgr's time which is already very busy

2) they want to (hopefully) attract multiple offers, which in turn could drive the price up a bit. The added benefit of this is that maybe they gain some extra traffic because people no longer think the particular house is out of their range. Also, a larger pool of buyers means a greater likelihood of QUALIFIED buyers and they lessen the risk of the deal falling apart because they can choose the most qualified offer.

Now if you wish to utilize this strategy I think as an agent you need to understand your customers' motivation and needs and determine if this strategy fits those needs. If time is of the essence and they need to sell the home I think this is a great strategy. Find out what your customer's "bottom line" is and work off of that. If the home is truly a value within the context of the current market then you could have your choice of offers. If it's not a value at that price then they are going to have a tough time selling anyway and it might not be worth your time listing it. This way there is less fooling around hoping for an offer to come in, and your odds of having to accept an offer that is on shaky terms is reduced

Great question and I'm interested in hearing the feedback on this one
0 votes Thank Flag Link Sat Feb 28, 2009
When purposely pricing it below the market, then you agree to play the game. In a multiple offer situation, it is good for the seller, because people do tend to let emotions fly when they make a higher offer. However, with heightened emotions, there is also pain. Every buyer wants the house, and they are going to be mad when you have to tell them, I'm sorry your offer was beautiful and perfect, but REJECTED! Let's say you have 6 buyers with offers... That's 5 that now are angry at someone. When the onion is peeled back, some will scrutinze if you turned their offer in, in a timely manner. Did you pass any confidential information to other parties milking higher offers. Even if you hadn't, I can tell you from experience, the investigation wasn't worth it.
Turn it around on the seller. Let's say you get your first offer. It's good. But another offer is on the way. Its better. You wait. The first buyer gets angry. Why hasnt the offer been accepted. The second buyer never produces, and the first buyer withdraws. There are a lot of choices in the market today. Your seller is 1 in 100. The first buyer just kept looking and found something better. You now have a seller without an offer at all. A low priced home and no bidding war.
If you want to price it low for that intent, it is a game, and you have to be willing to play it. and your sellers do to.
0 votes Thank Flag Link Sat Feb 28, 2009
I hear you Daniele, and after thinking about it more, this method would only work for a few. Most sellers would be more comfortable with the scenerio and method you described. Thanks for anwering.
0 votes Thank Flag Link Sat Feb 28, 2009
I have never intentionally priced below market value just to get a bidding war.

When I go on a listing appointment, I take my clients time frame to sell and what they need to net from it, and create multipule timelines at various price points. We go over all the scenarios and they choose the one they are most comfortable with. It's a lot more work to create these additional timelines, but in the end it allows them to choose the list price they are comfortable with without the feeling that I am only giving them one choice and hope for the best.

I have had great success with this approach and my clients enjoy the fact that I have covered all their bases for them.

Daniele Summerfield
Wilkinson and Associates
0 votes Thank Flag Link Sat Feb 28, 2009
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