underpricing a home

The Danger of Under-Pricing Your Home and the Big Lie Real Estate Agents Are Telling You

You may think under-pricing your home is the key to making a swift sale. After all, everyone hears about bidding wars and homes which fetch $100K over the asking price in the Brookline or Boston markets.

However, there is a difference between things that sound good and things that are good. Homes sometimes enter these kinds of bidding wars when they’re under-priced in the first place, which means the sellers of these homes will never know if they could have gotten more money.

And here’s the hard truth: they probably could have.

Of course, some sellers aren’t aware of what’s going on: they’re just following the advice of real estate agents who are are happy to make a little less money themselves if it means they don’t have to work particularly hard.

How to Spot a Lazy Realtor

There are two things to look out for here.

The first is the agent’s own marketing. Any agent who boasts about consistently selling homes for 10% above the asking price is under-pricing their offerings almost every time they sell a home. They’ll try to tell you this isn’t the case. Instead, they’ll try to make you believe they’re doing some special kind of marketing to create this advantageous price war.

Unfortunately, that’s a lie.

There is no marketing trick that can magically make a bidding war happen or get you 10% more than the house is worth.  An agent consistently fetching 10% over asking price is consistently under-pricing the home.

Second, these real estate agents will try to tell you that there’s “no such thing” as pricing a home too low. They’ll point out there will be multiple offers over the sales price and will try to convince you these multiple offers will get you to the true value of the home in no time at all.

That is a very easy way to get out of the challenging task of understanding the market well enough to price a home correctly.

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The Math Doesn’t Add Up

All you need to debunk this claim is to give some thought as to why there might be a bidding war at all. Why would people race to pay more instead of paying the low price the seller is asking for?

It’s because even if they win the bidding war and pay more than what is asked for they are nevertheless getting a steal of a deal.

Let’s say your lazy agent lists your $600,000 house for $500,000. Now let’s say you get 10% over the asking price.

You’ve just sold your $600,000 house for $550,000, which means the buyer gets a $50,000 discount. Suddenly that bidding war doesn’t look so good. Even if you get 10% more than you asked for you’re still getting $50,000 less than the home is worth.

The bidding war only tells you some savvy buyers recognized they’d gain immediate equity by making an aggressive offer.

In a seller’s market, there could be enough pressure to push the price well over the asking price.  But it is better to start with a price which reflects the value of the home.  

Remember: Good Agents Don’t Play Pricing Games

Good agents price homes at market value and help you find the right buyers for those homes. You might only get fewer solid offers this way, but they’ll all be offers which honor the value of your home and the investment you’ve already made.
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