Under Pricing Your Home As A Marketing Strategy

By
Real Estate Sales Representative with RE/MAX All-Stars Realty Inc. Brokerage
https://activerain.com/droplet/4QV4

SOLD OVER ASKING

Today in our local Uxbridge real estate market we are seeing more homes selling above the asking price as Realtors® recommend a tight to or barely under market pricing strategy.

While many buyers feel it is an unfair practice there are those who understand the principle of getting the most money possible in the shortest time possible and with the fewest inconveniences possible that lies behind the sellers decision to adopt this strategy.



Under Pricing Homes Is Not A New Strategy

Under pricing a home as a marketing strategy to elicit multiple offers has been around for almost two decades, even in a down market.

"multiple offers are still here, due in part to a practice that first surfaced in the late 1990s" from the article Sellers underprice, hoping to get way over price / Strategy pits bargain-hungry bidders against each other by Kelly Zito, Chronical Staff Writer July 14th 2002

Recently there has been an increase in the number of homes being sold for over the asking price both here in Uxbridge and across the Greater Toronto Area.

In our hot real estate market Realtors® pricing a home at or near recent comparable sales might appear to be using under pricing as a marketing strategy to help get the highest possible price in the shortest possible time with the least amount of inconvenience for the seller. In reality it is the demand that is causing buyers to pay more.

While this strategy can work it does not always work in all areas or all markets. Understand the risks involved if you are contemplating employing this as part of the marketing strategy for your home.

Despite this article's claim that "there is no downside to under pricing your home" there is always the possibility that you will not get any offers over the asking price.

 

Pricing Your Home Is An Art

From Los Angeles, California to Uxbridge, Ontario pricing your home is an art. There is a fine line between pricing it to sell and pricing it to sit for weeks perhaps even months without an offer or perhaps only lowball offers. In the right market pricing it under market value may actually be the best route to go as it can generate multiple offers and sell for more than it might have had you listed it at or slightly above market.

As Jane Peters so eloquently states ..... "If you hit the sweet spot on pricing you are going to induce multiple offers, and you will end up getting over asking and maybe more than you anticipated. When you are selling your home you want to feel that you are letting it go for its worth, not what you feel it is worth but what it is actually worth. And who ultimately determines that worth, the buyer."

 

Realtors® Don't Set The List Price For Homes.

Your Realtor® will provide information on comparable properties and other pertinent information including marketing strategies to help you determine the asking price for your home but ultimately it is up to you the seller to set the asking price.

Who Controls The Listing / Selling Price

Factors that affect the value of a home are presented to a home seller to help determine the potential asking price.

The actual listing price is set by the seller not the Realtor®. While the Realtor® advises the seller and recommends a listing price the ultimate pricing decision is in the hands of the seller.

Factors that affect the value of a home are presented to a home buyer to help determine their potential offer price.

The actual sale price is determined by the buyer and the seller with the help of their respective Realtors® who negotiate on their behalf.

Real Estate Is Local

Remember real estate is local and comparing your home to another several miles away under most circumstances is like comparing the price of apples to oranges. When putting your home on the market you need to look at the comparable homes that are for sale or have recently sold in your immediate neighbourhood., It also pays to look at homes that did not sell and try and determine why they did not sell so that you do not fall into the same trap. The key is finding a real estate agent you can trust who knows how to price a home for sale without leaving money on the table!

 

When To Use Under Pricing As A Marketing Strategy

One of the best times to use under pricing as part of your marketing strategy is when demand is high and inventory is low.

Now Is The Time

"A bidding war is a sign that the home is probably underpriced—and the truth is that many new listings are just that, on purpose."  From the article Forget Lowballing: Bidding Wars Return in Hot Housing Markets By Brad Tuttle April 30, 2013 time.com

While the article was written in 2013 we are currently experiencing lower than normal inventory here in Uxbridge, with the number of actual sales suggesting that our buyer pool is about the same for this time of year creating ideal conditions for utilizing a near market or underpricing strategy.

"With the right price in the right market, you could get multiple offers in a very short amount of time. This is especially true when there are a limited number of homes available to purchase. Inventory levels will often dictate how quickly a home receives an offer". from the article  Top 6 Myths About Pricing a Home For Sale by Bill Gassett

 

Buyer Beware

Here is an example of what can happen when a seller listens to the advice of his agent and prices their property aggressively to generate multiple offers and the buyer works with an agent who does not understand the effect of under pricing the listing.

"Recently, when we were hired to sell a home ...... we advised the seller to price the home to encourage multiple buyers to compete for the home." from the article Happy Homebuyer Does Not Realize His Real Estate Agent Just Lost Him$15,000 by Joe Manausa, April 18th, 2016

 

Additional Resources

House Hunting In The Spring Market advice for the spring home buyer
Spring Home Buying Tips For First Time Home Buyers via Inlanta Mortgage - Madison 

Real Estate Pricing Mistakes That Need To Be Avoided via Rochester Real Estate Blog.
Is Your Home Priced Like The Game Show The Price Is Right via Imagine Your House.
How To Sell Your Home For Top Dollar By Pricing It Correctly via Selling Warner Robbins.

 

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Kathy Clulow  Sales Representative RE/MAX All-Stars Realty Inc..  Brokerage 905.852.6143
Each office independently owned and operated  Not intended to solicit clients already under contract

 

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Re-Blogged 5 times:

Re-Blogged By Re-Blogged At
  1. Patricia Kennedy 04/20/2016 06:00 PM
  2. Tony and Suzanne Marriott, Associate Brokers 04/20/2016 11:06 PM
  3. Melissa Jackson 04/24/2016 02:21 PM
  4. JM Padron, CCIM, MRICS 05/13/2016 11:27 PM
  5. Winston Heverly 07/18/2016 01:50 PM
Topic:
Real Estate General Information
Location:
Ontario Durham Region Uxbridge
Groups:
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RE/MAX Active Rain Bloggers
Ontario Real Estate and Information
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Tags:
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Rainmaker
1,523,605
Sybil Campbell
Long and Foster REALTORS® 5234 Monticello Ave Williamsburg, Virginia - Williamsburg, VA
REALTOR® ABR, SFR, SRES Williamsburg, Virginia

Hi Kathy, you raised some excellent points in  thie blog about pricing strategy.  It can be dangerous to underpirce a house as you point out in this blog.

Apr 24, 2016 04:33 AM #49
Rainmaker
1,560,731
Carla Muss-Jacobs, RETIRED
RETIRED / State License is Inactive - Portland, OR

I've seen this listing strategy in my area.  The trouble with it is two-fold IMHO.  First, buyers who are not used to it will assume if they pay full price on the list they will be in the running.  Second, this artificial inflation in a short supply market will push offers up, and yes, the properties will sell for more than list.  What this does is blow up the bubble.  The home which sold for $50K above, will probably not appreciate to that value in re-sale in the next 3-5 years.  What if the owners want/ need to sell and the market in 3-5 years is soft.  They're stuck with a home they over-paid for.

Apr 24, 2016 05:17 AM #50
Rainmaker
1,013,325
Sam Shueh
(408) 425-1601 - San Jose, CA
mba, cdpe, reopro, pe

About 30-40% home original listing price is low to get the attention then they raise to market price.  I personally do not think it is professional.  Bait and switch tactics?

Apr 24, 2016 05:34 AM #51
Ambassador
4,300,186
Praful Thakkar
LAER Realty Partners - Andover, MA
Andover, MA: Andover Luxury Homes For Sale

Pricing is an art, indeed Kathy Clulow .

And with your post, I can say, underpricing is an art, too....lol!

Apr 24, 2016 03:26 PM #52
Rainmaker
1,791,946
Ginny Gorman
RI Real Estate Services ~ 401-529-7849~ RI Waterfront Real Estate - North Kingstown, RI
Homes for Sale in North Kingstown RI and beyond

Kathy, although it may work for some sellers I am all about transparency & do not like pricing below...I recommend pricing to market depending upon the time frames the seller has.  It is so interesting how we all think !

Apr 25, 2016 08:58 AM #53
Rainmaker
1,431,210
Gene Riemenschneider
Home Point Real Estate - Brentwood, CA
Turning Houses into Homes

I think some sellers are recluctant to go this way for fear they will only get one offer, at the low price, and have to go with it.  In this up market I advise pricing at market and then it can up from there.

Apr 25, 2016 09:59 AM #54
Rainer
31,466
Olesa Islamova
Royal LePage Your Community Realty - Toronto, ON

Kathy thank you for writing about underpricing and congratulation on being featured. I'm your proud neighbor from Toronto/York Region. I agree with points that you make, and as you probably know here in the Greater Toronto Area we've been experiencing a boom of underpriced listing with a set offer dates. I believe it's around 80% of all listings right now. And I acknowledge this strategy as being beneficial to the sellers and their representatives.

 

Just last week, my clients and I submitted an offer at the set offer date for a property that gathered in total 19 (NINETEEN!!!) offers. At the end, it was sold for $100K above asking with absolutely no conditions and short closing period. The listing was underpriced and all representatives knew it, but most of our clients decided to get it exactly because of the very attractive price. Prior to this one the absolutely similar houses were selling for at least $52K less for what had been thought the real and justifiable market value. And when I say absolutely similar, they actually are in all respects similar. Those houses were built in 1979 and most of them have outdated wiring and very small backyards surrounded by neighbors from all sides. Can you imagine consequences of removing a home inspection after barely viewing it with other eager buyers? I extensively work in that community and know it very well.

The problem is that this new price range makes the whole community unfordable for the 1st time buyers and young families with kids who were historically attracted to that community due to the affordable prices, good schools and proximity to Toronto. However, this is not a community that attracts other type of buyers. I’m very curious to see what will happen next!  

Apr 25, 2016 11:51 AM #55
Rainmaker
1,036,503
Kathy Clulow
RE/MAX All-Stars Realty Inc. Brokerage - Uxbridge, ON
Trusted For Experience - Respected For Results

Thank you Olesa Islamova it's a subject I've only seen covered by a few.

While I know there are some who are practicing under price listing strategies I also know that not all of the 80% (wow is it really that high) over list sales are a result of underpricing.

I suspect there are more than a few that are selling over list as a result of the hype being generated about our current market conditions

Apr 25, 2016 02:16 PM #56
Rainmaker
514,713
Mary Hutchison, SRES, ABR
Better Homes and Gardens Real Estate-Kansas City Homes - Kansas City, MO
Experienced Agent in Kansas City Metro area

I do not agree that a home is underpriced if it gets multiple offers over asking price. This is happening quite often in the KC metro area.  Buyers go way over asking price due to lack of inventory ...plus they get so caught up in the process and obsess over getting a house. If they pay way over asking price and they want to sell in a few years...where is their equity?

Apr 26, 2016 10:59 AM #57
Rainmaker
401,223
John Wiley
Right Move Real Estate Group- EXP Realty - Fort Myers, FL
Lee County, FL, ECO Broker, GRI, SRES,GREEN,PSA

Kathy, this is a thought provoking post. I think the key is to KNOW your market.

There are many factors in establishing a listing price. We must be careful not to just pick up on a strategy that worked for some but may not fit our market.

Thanks

Apr 26, 2016 12:41 PM #58
Rainmaker
307,400
Jeff Fisher
RE/MAX Fine Properties - Scottsdale, AZ
RE/MAX Fine Properties

Thank you for the this interesting post! Love the tips and strategy. 

 

May 03, 2016 04:32 AM #59
Rainmaker
590,581
JM Padron, CCIM, MRICS
INTERNATIONAL COMMERCIAL ASSOCIATES - San Diego, CA
CCIM, MRICS, Serving Mexico-USA Border

Definitelydepend on the particular market. This strategy may have some legal loopholes, be careful! 

May 13, 2016 11:26 PM #60
Rainmaker
1,013,325
Sam Shueh
(408) 425-1601 - San Jose, CA
mba, cdpe, reopro, pe

Congrats. In our area avg homes sold are 5-6% higher. It was 10-15% over before. However, I got one sold below asking price. The home does not have a master suite.

May 19, 2016 02:01 PM #61
Ambassador
2,863,813
Tammy Lankford,
Lane Realty Eatonton, GA Lake Sinclair, Milledgeville, 706-485-9668 - Eatonton, GA
Broker GA Lake Sinclair/Eatonton/Milledgeville

That's never been a strategy used in my market.  We've had years of inventory for 10 years now and it would not be a good plan.

Jul 18, 2016 02:12 PM #62
Rainmaker
1,490,499
Inna Ivchenko
Barcode Properties - Encino, CA
Realtor® • Green • GRI • HAFA • PSC Calabasas CA

It is not a new strategy but it does generate multiple offers. Though, few sellers agree to underprice their properties. 

Jul 18, 2016 04:52 PM #63
Rainmaker
3,087,688
Nina Hollander
Coldwell Banker Residential Brokerage - Charlotte, NC
Your Charlotte/Ballantyne/Waxhaw/Fort Mill Realtor

Hi Kathy... I've used this strategy judiciously over the years and it works like a charm to get traffic, interest, and as often as not a higher selling price in the end than the seller would have gotten by pricing at market value.

Jul 18, 2016 09:44 PM #64
Rainmaker
1,541,930
Sandy Padula and Norm Padula, JD, GRI
HomeSmart Realty West & Geneva Financial, Llc. - Carlsbad, CA
Presence, Persistence & Perseverance

Here in San Diego County, Kathy Clulow  , many sellers do under-price but use range pricing to indicate the actual price they will consider seriously and you guessed it; it is the higher price in the range!  Buyers do get angry when this is done, but with our guidance, we are normally able to work around this issue.

Jul 18, 2016 10:29 PM #65
Rainmaker
1,036,503
Kathy Clulow
RE/MAX All-Stars Realty Inc. Brokerage - Uxbridge, ON
Trusted For Experience - Respected For Results

That's great Sandy Padula and Norm Padula, JD, GRI NMLS#1483386 guiding and informing tops the list to arriving at a succesful conclusion .....  An informed and educated consumer is our best customer 

Jul 19, 2016 08:44 AM #66
Rainer
54,353
Sana Solanki
Kingsway Real Estate - Brampton, ON
Homes!

This is a great way of generating multiple offers and working for your seller to get top dollar for his home.  Great post.

Sep 14, 2016 01:22 PM #67
Rainmaker
1,036,503
Kathy Clulow
RE/MAX All-Stars Realty Inc. Brokerage - Uxbridge, ON
Trusted For Experience - Respected For Results

In todays market it's no longer a strategy Sana Solanki with so many homes selling over asking it has become the norm and not by design but simply because of our crazy market. 

Sep 19, 2016 01:30 PM #68
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