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Underpriced homes: Good strategy or huge detriment? | Surrey REALTOR shares the pros and cons

So you're a home seller and you just got 22, 19, 30 offers on your property and you're ecstatic. But the question is, does underpricing your home always result in the best outcome in a busy real estate, low inventory market? Well, we're here today to answer just that question. There's many assumptions that many people and most real estate professionals make in a low inventory market about underpricing a home. Things like it's going to bring in more traffic, it's going to have better marketing and it's also going to result in a better result.

And the question is, is that all true? Does it really end up with a higher sale price? Well, we're going to dig into that. So we are almost at the 2 year mark of the pandemic and almost equivalently the crazy low inventory real estate market that really started towards the beginning of 2020. There is a strategy out there that's been around since we saw the big influx in the 2015 to 2017 market of underpricing a home, making it incredibly challenging and difficult for a buyer to win the home when there's multiple bids because the home is priced lower than what it's actually going to sell for. Now, in 2022, are home sellers still underpricing their homes hoping to attract multiple offers?

Unfortunately for you, if you're buying a home, the answer is yes. But the question really becomes, does this help the seller actually make more money? Is this the only thing that's going on that's really driving up these real estate prices? Because just like anything in life, there are certainly benefits to doing this strategy but there's also detriments. If you're in the Surrey or surrounding area in the Lower Mainland, you definitely want to watch this video because there are some things that can really hurt you if you don't know what you're doing in this type of low inventory market.

So let's start with the benefits of underpricing your home. I think the most obvious is, of course, multiple offers. Getting bids that is hopefully going to raise the price of your home up as about as high as you could ever imagine it would go. When you are in this type of environment, I like to call it poker room negotiations start happening. Where everybody is kind of almost submitting a bid for your home and you're hopefully getting lots of them, but they're submitting a bid on your home and not anybody knows what the other person is doing. It's very closed door, closed file.

This can result in offers being all over the place. And believe me, I've seen many of them many times, where offers come in lower than asking price, at asking price, above asking price, or sometimes significantly above asking price. And this is really one of the biggest benefits to the seller of running this strategy. This can also be great for the seller because it can result in a relatively quick sale. Look, there's no secret that selling your home kind of sucks.

It even says that on the front page of our website. Being kicked out of your home for extended periods of time, having strangers trapeze through the place and having to keep it completely clean at all times isn't very much fun. So selling your home over a weekend sounds like a pretty good deal if you're a home seller. The next benefit for a seller is you really can get away with a lot more. If you have a home that is in need of a ton of renovations as an example, you might get offers that are condition free when you use this strategy. So you might not even have buyers that are aware of some of the challenges, problems and expenses that your home may face.

And the good news is this might end up saving you a lot of money if those buyers choose to forego doing a home inspection. On an alternate note, if you haven't updated the look of your home since the 1970's and you still have that green toilet in your ensuite bathroom, you can usually get away with stuff like this in a market like this and using this underpricing strategy, which it can be really fruitful. The last advantage, which I think is actually one of the bigger ones too, is flexibility in offers. Usually when a seller puts their home on the market, they also need a home that they're going to go buy. And one of the biggest fears for a seller right now is not having something to buy.

Sure, it's a lot of fun to sell in a market like this, but then many times those people have to go out and they have to find a home to purchase. Having a selection of multiple offers not only can help you attain a really great price, but there's more of a contract than just the number. This means that if you have specific dates or need specific flexibilities within a contract. Usually at this time you're going to be able to negotiate some really great terms because you're the popular kid in town. People want to be your friend, they want to buy your house so you can negotiate these things right into your contract quite easily.

Now, just like everything in life, there is detriment to running this strategy as well. And under pricing a home is not always the best option. You know, I find that so many Realtors in our community think this is the only way to go. And one of the detriments is going to tell you exactly why they might think that. But if you're selling your home, you want to make sure that you're doing the very best for you.

You want top dollar. You want to make sure the right person buys your home because the right person is likely going to give you the best terms and also the best dollar for your home. So it's not always the best strategy, and you're going to have to take some of these detriments into consideration before you pick your strategy in selling your house. The first one, as I somewhat alluded to, is lazy real estate professionals.

Yes, folks, they are out there. We see many Realtors in our marketplace suggest to use tactics like this because it's easy and they want to get the home sold as quickly as possible. But where they really start to fall down on behalf of the seller is they don't necessarily have windows of openings available for all of the people to come in and see the property. As an example, you have a home that is aggressively underlisted, and underpriced and there is only one open house opportunity to see the home and it's for 2 hours during the weekend. Well, especially during Covid times, not only can it be difficult to get multiple people into the same property at the same time because of health reasons, but also some buyers might not be available on a Saturday between 2 and 4.

They might be working and they could also be the highest paying buyers out there for your particular home. So good news, they're running 2 open houses. Well, it doesn't really change things. One of the biggest challenges we have as Realtors right now is everybody seems to do open houses during the same times and if we're hosting one, that means we've got buyers who maybe aren't able to go out and see all these other homes as well if we're not available to accompany them. So by having these very strict short showing windows, we could be putting the sellers at a huge disadvantage by not allowing all the buyers to get in and see the property.

So this is something you definitely want to take into consideration when you're formulating a plan with your real estate professional. And look, I'm a Realtor. I don't want to say that Realtors are lazy, but of course there's some lazy ones out there. Just like any industry there is full of amazing, incredible, hardworking people, but there's also lazy ones as well, I think you know that. Another one of the detriments to this strategy is we see homes that are aggressively underpriced.

And one of the biggest problems with doing that is you've got people who are taking up showing times looking at your home, who are never going to be able to afford your house. Let me give you an example. You think your home is worth $1.5 million, so you listed at $1.3 million. Usually on the advice of your real estate professional. However, the challenge is I'm going to come show my buyers your home, thinking we can maybe get it for $1.4 Million. The problem with this is this is $100,000 less than what the home is actually going to sell for is what we're thinking we can get it for.

My buyers are not going to get that house, but we are taking up a valuable slot of a showing time that could go to someone else who actually would pay the money for your home. This means during COVID times, there's lots of people who can't even get into some of these houses because of these limited showing times and these massively underpriced strategies. And the people who can't afford these actual homes, who are never going to put offers in that are going to get accepted, nor even what the home is worth, are taking away very valuable spots. So be very careful about that. This can also piggyback into the people who actually can afford your home sometimes might not even be looking at it because it's not on their radar.

You want to be careful that you don't so massively underpriced your home that the people who can actually afford your home and are looking at it are actually seeing it in the first place. One of the other detriments, of course, is just incredibly high traffic in your property. At the end of the day, it's all strangers, we'd like to think they're qualified strangers, accompanied by the real estate professional, but realistically, to us they are all strangers coming into your home and walking around in high traffic in your home.

One of the more common problems that we see in a market like this as well is often financing is failing. This is because not only are the prices jumping so far from what the asking price is, but a lot of the times we see buyers either get cold feet or they assume their financing is in place and they have to take risks that they normally wouldn't take to try and get your attention. As a home seller, if you're going to be looking at subject free offers, you want to make sure any offer that you're prepared to accept has very, very strong financial backing and you know as much financially about those buyers before accepting their offer as you can. In a slower market environment, we of course would have offers typically subject to the buyer confirming their financing with a financial institution of their choice, which is much safer for a seller to accept than one that is condition free. Because the reality is these offers, while they might not have a condition of financing on them, these people are still going to the bank and needing a loan to be able to buy your property.

And the very last detriment we see to this strategy is oftentimes people pricing their home so far away from its actual value that the numbers never hit there in the first place. And the example that I used previously of a $1.5 million house asking $1.3 million, that can be incredibly poor decision for the seller. And here's why. That seller might be lucky enough to experience multiple offers and have that $1.3 million asking price driven up to $1.4 million, $1.5 million whatever that number might be. But sometimes when you're so far away from the actual value, we see the buyers not even get that high because people start to think, Well, I'm offering $150,000 over the asking price.

That should be enough, shouldn't it? And I tell you, there are so many people that think like this as a buyer's agent at times, it's hard to help them understand the difference between asking price and value. And every dollar we get above the asking price becomes more of a challenge for many buyers to accept. So in conclusion, is it the right move to underprice a property to get it sold? Well, that's up to you.

In a low inventory market like we are in the Surrey and surrounding areas in the lower mainland, many people choose to use this strategy. There are still people that choose to, what we would call overprice their homes and there are still people that choose a reasonable or sharp asking price, one that is likely very close to what the home is going to sell for. Anecdotally we helped a buyer get into a property just this week and there was two condominiums in the same building for sale. One was taking offers on the Monday, one was taking offers on the Tuesday. The one taking offers on the Monday was listed at $599,000 and we knew they would sell in and around the $800,000 Mark. Listing B, the one looking at offers on Tuesday, they were listed at 800,000 right off the bat. So the one that took the offers on the Monday that was listed at $599,000, they ended up selling at $825,000.

They fielded 22 offers and an incredible amount of showings. Seems like a lot of wear and tear on the property, a lot of wear and tear on the seller and they ended up at $825,000 in the end. Well, the property that sold the following day, 3 offers they sold for $850,000. It was our buyer that ended up buying it. So our buyer got a reasonable deal on it based on what the market conditions were they didn't have to compete with 22 other offers and that seller because they intelligently listed their property in the first place.

Got to enjoy a really great deal with a lot less wear and tear on their property and on them. So in the end, guys, it's up to you what you think is the best strategy and that's something you're definitely going to want to converse with your real estate professional at the time. But now you know the good and the bad about the underpricing strategy. Let us know in the comments below what you think, what you think about the market, what you think about this under pricing strategy. Whether you like it, whether you don't like it.

If you're a buyer, I'm assuming you don't like it and let us know if you can think of any more pros and cons to this strategy so we can help bring you guys better content moving forward. We'll see you next time.

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Darin Germyn PREC* & Adam Howsam

Macdonald Realty LTD

homes@germyn.ca | 604-542-2444 | www.germyn.ca

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