Deciding on a public list price is one of the vital tasks for a listing agent and seller, working together. Everyone involved wants to maximize the gain for the seller. But they must try to avoid the risk of pricing too high, and getting stuck. We've said it 1,000 times here and will repeat it (free advice): Starting out too high almost always means selling too low in the end. But what about starting "too low?" What's the risk there? We'll have to sell it for less than we should. But selling "too low" because your list price was "too low" seems like more of a risk when you've set a price within that hypothetical band of actual, potential values - typically a few percentage points. If the start price is intentionally very low, you should trigger something of an auction. Then, a herd of wild horses will come in, and multiple offers will compete to find the home's price. If that's such a good strategy, maybe all homes should be priced at $1.99, and every home sale can be an auction. For some reason, that's not really done. In fact, there is one real estate brokerage that operates almost all listings as auctions, but almost no one seems to hire them. Perhaps sellers inherently distrust an auction process to deliver the right value. Noodle on that and discuss. A Recent Case of 'Low' Pricing We're thinking of this in part because we're working on pricing for a few upcoming listings - hi, guys - and because we just saw a Manhattan Beach listing execute something of an "intentionally low pricing" strategy. That was 132 1st Place (3br/2ba, 1494 sqft.) (pictured above and here), a cute, largely original 1950s beach house in a good location near the water. They began at $2.100M. Before we had even taken note of the listing on the MLS, a client reached out to ask, basically, "What the heck is their deal? Why is this so low?" Discussions with other clients grew more advanced, and we investigated further. Several things were clear. First, there was the potential stigma of a death on property (peaceful, natural causes). (See our post, "Do You Care if Someone Died in the House?") It's always unclear how that might influence buyers or their valuations. Next, the agent and heirs were from out of area. They seemed to have a general idea of value, but not the kind of local expertise that you'd count on to really nail down a proper value range. Lastly, it was a strategy. They were pricing low, and suggesting that buyers come in on the first round with a best-and-final offer. Counters were unlikely. You could kinda forget that $2.100M price. No one was going to steal it for that. In fact, it was going to be a case of massive blind bidding. Ooomph, buyers hate being told to go "all in" with blind bidding. But for this location, you could get buyers to shake off that aversion and make a run. The start price might as well have been $1.99, for all the insight that "$2.100M" provided. The number reflected neither the market value nor the sellers' expections. It was a filler number. We're not free to say much more of what we heard and know about the process that played out, but we'll see the closing soon enough. (Do you want to take the over or the under on +20?) Experience Teaches That It's Better to Try to Get the Price Right In our listings, we try not to price too low, or too high. We've lost opportunities to list properties by providing clear-eyed, data-based guidance on pricing, only to have someone else promise the moon and take the job. We're watching one particular listing sit right now, wondering if it will ultimately trade closer to our pricing guidance, after another agent took the listing at a much higher price. We'll see. Back in the day, early in our career, we did price one too home low, unintentionally. We drew 14 offers and sold almost 20 over list price. In that case, we had worked closely with the seller - a finance pro - to set a price carefully, conservatively, thinking we might be 2-3 low, but trying to avoid going too high. The resulting onslaught of interest required a lot of work, including a lot of calls to say "sorry, not you," and it caused a lot of dashed hopes and disappointment. We had too many "pretenders" in the resulting quasi-auction, people who were never going to get the house and could not reach where it was going, price-wise. We developed some principles out of that experience. Don't go too low. You're wasting people's time and emotional energy. There's value in getting the price basically right. If the market takes the price up, good for everyone. And if you start out high by a tad, it shouldn't be deadly. We have not yet recommended $1.99 or "20 under" as a pricing strategy, but the year is young.
