Pricing Strategy of Underpricing a Listing Misleads Some Buyers
I received a call about a property that was priced at $99,000. The buyer was looking for something priced at $100,000 or less and this property was in a preferred location for her and was a property that interested her greatly. She questioned whether the price was correct.
I checked the listing and figured that it was worth at least $450,000 and maybe as much as $650,000. It was not listed as a foreclosure, a short sale, an auction, or as any kind of distressed sale. In fact, the property recently had been renovated.
The strategy in this low inventory market is to price the property extremely low and let the knowledgeable buyers make their highest and best offers, which hopefully for the seller, is an amount which is acceptable to the seller.
In this particular case, the strategy apparently did not work, because the property is now listed for over a million.
With this agent, it is hard to figure what is really wanted. First he extremely underpriced it, then when that did not work, he has extremely overpriced it.
The first time around he wanted the buyers' highest and best offer, so now I suppose that he wants their lowest and worst offer.
When this underpricing strategy is used more effectively, the property is not priced extremely below market, but closer to 80 to 90% of its value, which is less misleading to potential buyers.
However, this can still be misleading and a waste of time for many buyers. For instance if a house is worth $150,000, but it is placed on the market for $120,000 all with the idea that it will be bid up to $150,000 or more, it gives false hopes to the buyers who can only afford $120,000.
While it is true that in a low inventory market, houses can go up in price just based on the concept of supply and demand, it seems to me that this will happen whether the house is priced close to market value or lower than market value.
If a seller is not going to be willing to accept a price for which they list a property, then they should not advertise it at that price.