Why do we list below market?

There are many buyers and agents who are deeply annoyed by underpriced listings. I don’t love it either, but I have to play along if I want my sellers to get the best price. Here are some of the reasons I’ve gone ahead and underpriced some of my listings:

 

Courtesy Flickr Creative Commons user kangotraveler

Courtesy Flickr Creative Commons user kangotraveler

I need to line up with my comparables’ listing price.

 

When studying the comps, I look at the listing prices as well as the selling prices. When we reviewed sales around 616 Panorama in Midtown Terrace, we saw a median overbid amount of 125 percent above listing price (I know, right?). We also noted that ten of the last 13 listings in the neighborhood were listed for under $1 million; the three listed above either had a higher bedroom/bath count or more square footage. To stay in line with what the market expected, we recommended a $999,000 listing price.

 

We don’t want to deny the market its desire to overbid.

 

About once a year I get a seller who insists on listing above where I recommend. Usually, their chosen price is right at estimated market value, which would make perfect sense in a “normal” market, but no sense at all in a market where buyers have been trained to overbid on everything. Last year I had a seller who was adamant about listing at $1,150,000, which was only 10 percent below market instead of the 20 percent his comparables dictated. I’ll never forget the phone call I got from a sweet buyer who called after it came to market; she had fallen in love with the home online, but wouldn’t to come see it because she was certain it would go above $1.3 million. I begged her to come out anyway, but she didn’t want to have her heart further broken than it already was. I’m sure there were many other buyers who felt the same way. (Ultimately we sold the property for $1,250,000 to a single bidder, but who know what we might have gotten had we just brought one more buyer to the table to generate some overbidding.)

 

There’s something maybe-sort-of wrong with it.

 

Sometimes we list low in order to compensate for a home’s “incurable defects.” Two years ago I listed a terrific condo with dynamite City views and an enviable 3BR/2BA floor plan. The drawbacks? A location half a block from a housing project and fifty stairs from the street to the front door. I knew that a tasty listing price would be essential to getting buyers out of their cars when they drove up. We listed the home below the magical $900,000 threshold that the comps demanded and home sold for 125 percent over asking.

 

It’s tenant-occupied.

 

We also list extra-low when the property is tenant-occupied and we are uncertain on how the marketing is going to go. Often tenants go to great lengths to limit showing opportunities and make the home look as unappealing as possible. For my listing at 1783 Newcomb, we were fortunate to have model tenants, who let us fully market the home and hold weekend open houses. The low price also helped buyers get past an initial objection to purchasing something tenant-occupied.