We all know the perils of overpricing.  Overpriced properties turn off buyers who can’t afford the price, turn away buyers who can afford price but who can get more house elsewhere, and eventually help sell the competition before your client’s home.  Overpricing all too commonly results in a price reduction later that is greater than asking the right price from the start.

Right pricing is ideal in a regular market.

So, when can “under pricing” payoff in a fast sale for the best price possible?  In today’s market under-priced properties attract lots of attention.  In the right circumstances, Rainmakers are telling us, the under-pricing strategy can be very effective.  Probably the riskiest scenario for under pricing is where most nearby listing competition includes numerous bank-owned REOs, short sales or distressed properties, including some desperate new-home builders.  (For May 2009 in Las Vegas slightly more than 75% of all closed sales were distressed properties, according to Real Trends.)  Here are 5 mistakes to avoid if you want to make the under-pricing strategy pay off in today’s market:

  1. Price ahead of the market. When a property comes on the market there is a window of opportunity to attract the most attention.  If market prices are rising, the seller can afford to be aggressive with a higher price.  When market prices are falling, a smart seller should “price ahead of the market” and list below recent comparable sales.  This pricing strategy puts the property ahead of the opportunity curve while the window is open. The strategy allows the seller to avoid chasing the market down and instead lets the market chase the seller, as Gary Keller describes in his perceptive book, Shift.
  2. Market determines price. Some sellers think under pricing will backfire in a low-priced resale.  In fact, in the under-pricing strategy if multiple offers or offers over the listing price do not appear – the seller after all can accept or reject any offer – then the seller has not truly under priced the property at all.  The property is right priced for the market.  The sales price buyers are willing to pay is the real value and that is what the marketplace is telling the seller.  The result: A fast sale at market price.
  3. Beware average prices vs. real prices. In some markets Rainmakers report a separation into two pricing markets.  They report “regular” equity sale prices are holding there own, more or less stable.  Yet recent sales of marked-down distressed properties and first-time buyer properties which tend to the lower end of the market, produce figures that pull down their market’s “average” price because the lower-end units dominate the average price calculation. Seller’s can avoid the “average price” trap in the distressed market by positioning the property as a “clean” above average home in move-in condition (see Tip #4) – or waiting until vacant and “as is” inventory has cleared.
  4. Pristine condition is key. Rainmakers using the under-pricing strategy take extra care to have their sellers buy into the fact that their home must be in move-in condition and consider flexible terms for a fast sale.  A truly under priced property will sell quickly…so have the sellers start packing before the home goes on the market.
  5. Work with a local pro. Under pricing is not for every property in every market.  Hiring a real estate professional (like you) to guarantee a clear marketing plan is in place is critical.  Offline promotion and materials and online photos and syndication must be ready before the listing hits the market.  A successful under-pricing strategy must be ready to move quickly…because the rock-bottom price will generate immediate interest from the pent-up demand of local buyers.

What tips do you have for sellers to insure an under-pricing strategy will bring them a fast sale?  Join the conversation.  Share a comment.

Dan Richard

Emeritus at Gooder Group
Dan is the Founder of the Gooder Group and the author of a series of successful Real Estate books: https://www.amazon.com/Dan-Gooder-Richard/e/B000APPTQK/.

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