Bidding on Real Estate
After reading today’s authoritative article “Bidding wars a legacy of housing bubble” in The Washington Post, you may think that many sellers are using a strategy of under-pricing their home to spark a bidding frenzy.
Want to know what it is really like? Then ask any home buyer in Northern Virginia about finding a below-market priced home.
The truth is… today’s home sellers are pricing their homes to squeeze every nickel out of them.
Buyers decide based on more than price
What causes a home to appeal to many people simultaneously is influenced not by a clever pricing strategy, but by the uniqueness of the location, available supply of comparable homes, interest rates, investor demand, and condition of the home.
For example, I recently put a townhouse on the market that was located in the center of Vienna VA. It is located a short walk/distance to the Community Center, the W&OD Trail (a 42 mile converted rail line), Whole Foods, a weekend Farmers’ Market, a public library, the Town Green, playing fields and Vienna Elementary School.
When it went on the market, there were no other (meaning = 0) town homes near that location for sale.
Interest rates for thirty year mortgages had just dropped to a six month low.
Investors know this particular location rents well. In fact, the last sale in the neighborhood was to an investor who rented out the property quickly.
This forty year-old home was in very good condition. That means, excellent move in condition with plenty of updates but nothing brand-spankin’ new.
The sellers opted to price it on the high side… just so they had room to negotiate if only one offer came in.
The results: Six offers arrived within the first five days.
So… was it a bidding war, you ask? No, not really.
That’s because real estate offers are elaborate contracts, and certain favorable “terms” can trump the price.
That’s because real estate offers are elaborate contracts, and certain favorable “terms” can trump the price.
If you read the Post article, the impression that William Strange and Lu Han, economists at the University of Toronto’s Rotman School of Management, is that pricing a home intentionally low is a commonly used way to sell homes.
In my experience actually helping sellers and buyers, real estate will sell at the price of the moment. And setting an asking or list price must be within a carefully calculated range that will appeal to the market of the moment. Pricing is “opaque” because each property is uniquely influenced by that specific moment in real-estate-time.
Too high and the house may never sell. No bids, no offers, and no sale.
And today’s smart home buyers aren’t willing to go into “bubble” territory. If they sense they are getting unsure about the price or a bad vibe, then they will pull their offers ~ ask any local real estate agent about clients getting “cold feet“.
Although I can easily ramble on about poorly written offers, missing information, home inspection and other typical real estate contingencies, you should understand that the bidding war strategy is not happening in 30 percent of the Northern Virginia real estate market.
