You dream of selling your home for a great price. At a minimum, you need the sale proceeds to pay off your mortgage and cover any closing costs and fees. Then ideally you’d like to make some extra profit to channel towards your upcoming home purchase or whatever else your next phase entails.
Hot take: If you want offers that live up to your expectations, consider strategically pricing your home below market value, not above it. While this might sound counterintuitive, HomeLight’s recent Top Agents Insight Report reveals that overpricing is the biggest mistake sellers make when selling their home.
“If you’re priced at the high end of value, your home is going to be sitting and accruing market time and, especially in a market that’s still moving, you’re going to automatically lose value in your house,” warns Louise Juracek, a top agent in Bakersfield, CA who’s witnessed this strategy fail time and time again in her 36 years of experience.
Going a bit low, on the other hand, can draw attention to your home as soon as it hits the market and encourage buyers to make competitive offers so they don’t miss out on a hot deal. Strategy is key here as pricing your home low only has the potential to start a bidding war if it is executed correctly in the appropriate market conditions.
To help you determine if pricing low is an effective strategy for your home sale, we’ll describe the scenarios where it’s likely to succeed and those where it’s more likely to backfire. We’ll then break down how the strategy works and walk you through execution from nailing down a listing price to picking your best offer.
When will pricing my home below market value work in my favor?
There are several circumstances where a slight underprice can play to your advantage:
You’re listing in a seller’s market
First and foremost, pricing your home low to encourage multiple bids works best in a seller’s market where the demand for houses exceeds the supply. In a seller’s market, more buyers contend for fewer houses, raising the stakes of the competition for the perfect home. It’s also essential that home prices are trending upwards or at least holding stable so buyers don’t misread your low price as response to a declining market.
You need to sell your home quickly
If you need to sell fast for a job relocation, for a contingent purchase of a new home, or other financial reason, then pricing your home low is one of the best ways to accomplish a quick sale. Your home will stand out among the competition, especially if housing inventory is low. If you receive multiple offers you’ll have a better chance at leveraging a deal to ensure a quick close, such as negotiating for your desired moving dates.
You want to attract buyers to your luxury home
Luxury homes sit on the market twice as long on average compared to their mid to low range counterparts. This extended market time is typically due to sellers having the luxury to list high and wait and see if anyone bites, and likewise buyers having the luxury to wait and see if the price drops. Pricing your luxury home on the lower end cuts to the chase. Interested buyers will hustle to submit their offer before another party swoops in. Just be careful not to price the home too low or buyers will question if something is wrong.
Your want to sell your home without renovating
Pricing low is a great strategy to sell a home in need of some TLC. Instead of spending your time and money on remodeling, focus on cleaning, decluttering, and staging to present the home as a blank canvas for flippers, deal hunters, and renovators. This will work particularly well in hot markets with low housing inventory such as Silicon Valley, as well as in areas where house flipping is trending. Price your home lower than comparables (e.g. other dated models) to entice buyers to place a competitive bid for a home with hidden potential.
You’re selling a newly remodeled home
Surprisingly, pricing low is also a strategy to sell a newly remodeled home. Take for example this story from Elmer Morales, a top-selling agent with 686 transactions under his belt:
“I had an investor, he had bought the property and fixed it up. We staged the house for him and he tells me, Elmer, I absolutely want to get $420,000 for this house and I’m not going to take anything under $420.”
Morales convinced the client to list for $414,900 to encourage buyers to make higher offers. As promised, several buyers entered a bidding war for the home, leading to the highest offer of $432,000, $12,000 over the client’s target sale price.
How can underpricing my home backfire?
There’s a nuance to underpricing your home. Pricing too low or in the wrong market can result in losing serious money in your sale. Here’s when the strategy can backfire:
Home prices in your market are on a downswing
As mentioned previously, home prices should be trending upwards or at least holding stable. When home prices are on a down swing, the buyers approach listings with the expectation of getting a good deal and are less likely to bid up the price.
There are plenty of similar homes on the market
The more comparable homes there are on the market, the less pressure buyers feel to engage in a bidding war for your home. After all, the stakes are much lower when they have 5 to 10 properties as backups. In this case, pricing your home in the middle, lower middle range of the competition could still attract multiple offers closer to your target sale price.
You price too far below market value
If you underprice too far, buyers might assume the home has hidden issues. If buyers are wary of submitting offers, your home will then sit on the market at the self-inflicted low price. That’s two red flags. You can’t really raise the listing price at this point (property history is easily accessible online) so will have to settle for whatever offer eventually drifts in.
How will my low listing price bring in high offers?
Even in favorable market conditions, you’ll need a strategic plan to turn a low listing price into a bidding war. Let’s break down the central elements:
- Work with a top real estate agent
- Formulate a strong pricing strategy
- Generate buzz with a great marketing campaign
1. Start with a top real estate agent
The latter two elements rely heavily on the quality of your real estate agent, so invest in finding a top real estate agent to lead the strategy. A top agent will give you insight on the market’s movements to determine whether or not pricing your home low to inspire a bidding war is a viable option.
2. Find your home’s true market value, then lower the listing price
Collaborate with your agent to discover the true market value with a comparative market analysis (CMA). The CMA will analyze recent listing and sale prices of homes in the area and weigh in factors such as square footage, age, condition, and unique features. With everything considered, a top agent will nail a price that reflects your home’s market value.
Lower your listing price to increase your buyer pool
Once you determine market value, apply the strategy by lowering the price by $10,000 – $15,000 for the listing to appeal to more buyers. For instance, if your target sale price is $510,000, then list at $495,000; now your listing draws in buyers looking at homes under $500,000, yet still appeals to buyers with a budget beyond this mark.
This tactic is especially potent in the internet age where most buyers shop for homes online using price filters to narrow their results. In 2018, 93% of buyers used the internet at some point during their home search and 81% of millennial buyers discovered the home they purchased using a mobile app. Considering sites like Trulia and Zillow’s price ranges increase in $50,000 or $100,000 increments, price your home at the upper limit of a cusp rather than the lower limit at the other side in order to get your listing on more buyers’ screens.
3. Generate interest with a solid marketing strategy
Juracek and Morales both emphasize the importance of hiring a professional photographer to take the listing photos to draw attention to your property. Share the home listing on all relevant platforms: single property listing website, digital real estate databases, e-blasts, and social media. Beyond digital promotion, a top agent will directly reach out to their firm’s relevant buyer clients, as well as to out-of-area buyer’s agents to spread interest.
Take advantage of your biggest opportunity to inspire competition by bringing multiple buyers into your home for showings. Overlap viewing times slightly to make the home appear highly desirable. When buyers cross paths at private viewings or at an open house, they’ll sense the urgency to submit an offer which has the ability to trump their opponent’s.
What’s my best approach to navigating the bidding war?
For bidding wars, the seller’s best weapon is maintaining professional, yet brief contact with interested parties. Allow your agent to lead communication in the following steps:
Delay responding to offers to create suspense
When early offers flow in, acknowledge you’ve received them immediately with a short email from your agent, but hold off on sending a formal response until at least a week from the listing date. This not only allows time for other prospective buyers to view your home and submit offers, but also builds tension for those who have submitted an offer.
Inform buyers of competition and let the bidding begin
When you and your agent are confident in the range of offers received, send the prospective buyers a formal response informing them that multiple offers are under consideration. Morales summarizes his typical message:
“I will ask for all parties to submit their highest and best offer and I’ll put a deadline on it. It’s usually 24 to 48 hours after I send that email out.”
Set a deadline to keep the process moving for all parties involved and you as the seller in the driver’s seat. Don’t wait too long to respond, or buyers who feel they’ve made a fair offer may get discouraged and pursue other properties.
Agents do not typically share the details of the competing offers (e.g. prices) to the prospective buyers. This practice, dubbed “offer-shopping,” is generally frowned upon in the real estate community and is even limited by some state laws.
Review buyers’ best and final offers
The drum roll moment: revised offers from each buyer ping one by one in your agent’s inbox. Working alongside their own agents, buyers know what comparable homes in the market are selling for and will boost their offer up competitively to win the sale.
“It never fails. After I send that email out, there’s always one or two or three offers that’ll come back at least $10,000 higher every single time,” Morales says.
Buyers know they must make a substantial leap in price to win a bidding war and the keys to the home they envision. A recent survey by Owners.com found that more than one-third of recent buyers went over budget by $20,000 to buy the right property. This data proves the impact setting a low price to expand your buyer pool can have—your best final offer can easily come from a buyer who entered the bidding with the lowest budget.
“If somebody really wants a house, they will up their game,” Juracek confirms.
How do I pick the best offer?
The best offer isn’t always the one boasting the biggest sale price. Believe it or not, Morales’s investor client didn’t accept the buyer with the highest offer of $432,000. Instead, he accepted a slightly lower offer at $428,000 ($13,100 above listing, $8,000 above target sale price) which entailed significantly better terms and conditions. Consider the weight the following elements of an offer can have on your decision:
1. Escalation clause:
An escalation clause states a buyer will outbid other offers up to a designated ceiling price.
2. Cash or large down payments:
Cash offers eliminate the delay of mortgage approval, generally speaking 30 to 45 days. If a buyer pays in cash, they can also skip the home appraisal process which can shave weeks off the sale time. The same may apply to strong buyers with a high down payment if their lender grants an appraisal waiver.
Watch out for the following contingencies which can derail the deal:
- Home sale contingency: the buyer will only purchase your home if and when their own home sells by a specified date.
- Appraisal contingency: the buyer may cancel the contract if the agreed purchase price is higher than the appraised value of the home.
- Inspection contingency: the buyer will have the power to jump ship if the home inspection elucidates a substantial issue which you as a seller refuse to repair.
4. Occupancy date:
Review the buyer’s presented moving date to see if it aligns with your needs. The weight of this factor is determined by your personal situation.
5. Home inspection waiver:
Don’t undervalue a buyer willing to forgo the home inspection as this process accounts for 19% of closing delays. The average national cost of a home inspection is $315, but the real cost comes from what the home inspection finds. Water damage, mold, structural damage—any number of expensive discoveries can be closing game changers.
How much room is there to negotiate with a second round offer?
Once you’ve selected the best offer, you might be hearing a little whisper in your ear—can we ask for more money now? The short answer is, no, not really. While it’s tempting to push the limits of your buyer’s budget, countering the price a third time may potentially sour a good deal and send buyers packing. Instead, communicate with the lucky buyer to finetune details in the agreement to arrive at a deal both parties are happy with.
Pricing your home low should be an educated risk
Like all strategies, pricing your home low has its risks: your home can sell for closer to the low listing price than your target or it might sit on the market while you wait for more competitive offers. However when pulled off, this strategy can help you sell your home quickly for a great price.
Your best bet at making it work? Collaborate with a top real estate agent. They’ll have the expertise necessary to evaluate if strategy will play in your market and to set the right listing price. They can then assist with helping you prepare your home for viewings and generate buzz with a marketing campaign to attract the attention necessary to inspire a bidding war. Be sure to discuss the possible outcomes with your agent so you’re prepared to live with the best and worst-case scenarios.