Underpricing Listings – Red Flags Or Bidding Wars?

You may have heard of the strategy of underpricing your home in order to start a bidding war over it. That can be a risky proposition. Is a low price listing a red flag to a buyer or a great strategy to get people bidding?

Underpricing Listings - Red Flags Or Bidding Wars?One problem with underpricing your home is that it could be a huge red flag to prospective buyers that something is wrong with it. If there wasn’t why wouldn’t it be priced closer to market value? Buyers who may have really been interested in a home like yours will not even take the time to look.

That’s not to say that it can’t be done. Some places the market has rebounded enough that it is a viable strategy. But not all. In order to do it right, you need a few things. First, a Realtor willing to take the risk. Then you need some data to actually make the decision. If comparables of homes sold similar to yours show that there was indeed sales for more than asking price, it might be a good strategy. You will need to look at things like days on the market, listing price, contract price and a description so that you know it is indeed a comparable home.

If a home has been on the market for a short period of time, say 5-7 days, there may very well have been a bidding war. Obviously if it sold for more than asking, it worked. And the description will give you an idea if the home was underpriced and they got market value or better in a bidding war.

One thing you have to keep in mind with this strategy is that it could backfire. If you don’t get the bidding war within the first few days then you may be stuck with a lower asking price and low offers based on that. Since no one wants to take less than their home’s true value, then you have to price adjust. Just like lowering the price if overpriced, raising it makes people question why. It weakens your negotiation position.

Talk with your Realtor and see what their thoughts are on underpricing to create a bidding war. Then decide if the risk is worth the possibility of reward.

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