The Dangers in Underpricing a Home

Today I want to speak on a topic that Realtors deal with frequently, intentionally underpricing a property.

We see it all the time, properties selling in multiple offer situations with parties bidding for the right to purchase a home. Sometimes paying tens, or even hundreds of thousands of dollars over the listing price! While the extreme bidding wars only happen in Winnipeg in certain market conditions such as extremely low inventory or interest rates, we have seen competing offer situations frequently and consistently in the past 10 years.

Just because there is competition for a home does that mean it was underpriced? No it doesn’t. As already mentioned there are many factors that affect the compete level that is focused on a given home.

However, what I want to focus on is intentionally underpricing your home. I have had many conversations with clients about this, as the idea of listing for a low price and having multiple offers to compete for a higher sales price sounds great. There are a few issues with this strategy.

Firstly it doesn’t always pay off.

There are many examples of homes listed for sale that started with a listing price, held an offer date to garner interest and try to entice a bidding war and when it didn’t happen then raised the list price, sometimes substantially higher than the original price.

Secondly you may not get what you want.

You may get offers on your posted offer date, but the amounts you get are still not what you would accept for the sale of the home. In this case the vendors usually follow the same strategy as the first and increase the listed price.

Thirdly equitable marketing.

One goal of any real estate agent when listing a home should be to accurately represent the property to the public, which includes pricing a home accordingly. Now there are many factors to take into consideration when pricing a home for sale. No two homes are exactly the same, which means there is wiggle room in the valuation of a property. Some properties have many comparable homes that have sold and those ones are typically very easy to value and usually come with a very small range for a valuation of the home. Other homes can be very difficult to value. For example homes that do not fit the general style or design of others in the neighborhood, extremely niche renovations, or homes with strange floorplans all can be difficult to value. Sure you can go on a price by square foot valuation or other such metrics, but that doesn’t necessarily equate to the correct value. On the homes with easy valuations I typically offer up a list price with around a ten thousand dollar swing in either direction. For some of the other harder to value properties, you can expect larger value ranges. This is really just to tell you that as a realtor I am constantly researching and seeing what homes are selling for, what they are not selling for and paying attention to accurate pricing for my clients. The point I am trying to make here is that Realtors have a very good idea what a house should be priced at. Pricing a home extremely low can cause many headaches for the agent as well. There are parts of our governing legislation that could be used as complaints for agents intentionally listing this way.

Really the answer is simple. Don’t intentionally underprice your property.

As I always tell my clients I am only going to market your home for a price that you would actually consider. If the market happens to dictate with multiple clients offering that the sales price ends higher than the list number then great, happy clients are the goal here.

I would say that limiting your amount of risk when selling a home is the best way to go about the process. And underpricing can increase your risk.

Theres a risk that your home may not sell, risk that you will lose buyers that are not interested in competing, and you may also risk formal complaints or even fines against the listing agent.

I think that avoiding all that risk would be beneficial to all parties when selling your home. In my opinion it is always best to accurately list your home for a fair market value. If there is excess demand for your home you may get lucky and have multiple parties interested anyways. If you want information on other strategies on how to present your home in the best possible way to make it appealing to as many people as possible.

#AgentLogan

Logan Queen

Tel: (204) 226-1261
Email: Logan@JenniferQueen.com