The Chicago Real Estate Minute

Is underpricing a home possible?

5 minute read

Overpricing can happen and does all the time. But what about under­pric­ing a home? The answer may surprise you.

What goes into pricing a home

Pricing isn’t as simple as looking into a crystal ball. It takes an agent’s extensive expe­ri­ence and detailed market knowledge to appro­pri­ate­ly set a home’s listing price. These are the most important factors:

  • Comparable sales (“the comps”)
  • Location
  • Staging
  • Condition
  • Finishes
  • Market trends

The concerns with overpricing

What’s the harm?” you may think. There are several concerns, and none are ben­e­fi­cial to a seller. First and foremost, an over­priced home will sit and toil on the market. Have you ever seen a home with 193 days on the market? What thoughts go through your head? Something must be wrong with it It’s over­pricedIs on an old burial ground?I bet the seller’s getting desperate

Image by Foto-Rabe from Pixabay

None of those thoughts in buyer’s minds are good for a seller. The home becomes stale, and instead of the list price helping that home sell, it’s simply driving people to decide to buy other homes around it. Worse yet, an over­priced listing almost always sells for less than it could have if priced well — sometimes tens of thousands of dollars less …

Perception vs. Reality

In general, people would prefer over­pric­ing to under­pric­ing a home. Why? One of the biggest reasons is the psy­cho­log­i­cal feeling of having some “wiggle room”. Understandably, people don’t like to feel that they do not have options, espe­cial­ly when they them­selves are the ones choosing the listing price. So they opt to price it above where it should be.

The process of buying a car is an analogy often used in real estate. The assump­tion is that cars are over­priced and therefore there is sub­stan­tial wiggle room. Some may view having less “nego­ti­at­ing room” as a sign of weakness. The truth is, there really aren’t many other things in American society that we negotiate on with a seller — we don’t haggle with the gas station clerk, put the squeeze on the butcher, or tell the clothing store that they need to drop their prices. It’s just cars and homes, so why not approach them the same way.

Image by Wolfgang Eckert from Pixabay

While indeed counter-intuitive, selling real estate is different. Nothing else being sold has a known market time — a clock showing how long it has gone without selling. And no sale is more important to most people than their home. Know how long that laptop you’re eye­balling has been sitting there? Has that sedan been lan­guish­ing at the deal­er­ship for 10 months, or perhaps just a few hours? You don’t know, and honestly, you don’t care. Reason: the value of the car, the laptop, etc. are not adversely affected by the knowledge of how long someone’s been trying to sell it. With a home, it absolute­ly is. Unnecessary wiggle room can be deadly.

What does “underpricing a home” mean?

Underpricing a home would generally mean that a list price below market value would cause a home to sell for less than it could have if priced higher. Bottom line, it rarely if ever happens. Why? Because buyers will respond with emphatic exu­ber­ance in the form of showings, and LOTS of offers — as more offers come in, the offers keep getting better. In the end, with the guidance of a knowl­edge­able and expe­ri­enced realtor who can leverage the situation for maximum benefit, the home will almost invari­ably sell for top value.

Should a seller underprice their home?

Image by Kurious from Pixabay

Although there is not a sub­stan­tial downside to it, I do not recommend under­pric­ing a home. There isn’t normally a need to. I always recommend that a home be priced as close to market value as possible as it will generally maximize the chances of the seller netting the most money, getting the best overall terms, and min­i­miz­ing their headaches.

Final word

My focus is always on what will help the seller net the most money from their sale. Period, end of story. Selling a home can be a chal­leng­ing, emotional, frus­trat­ing journey. The best way to remove those hassles is to price it exactly where it should be. If even with multiple offers, buyers do not drive the price above the listing price, the home wasn’t “under­priced” to begin with.

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