The Danger of Underpricing for Bid Wars

(April 23, 2012 )

We've all heard of homes in the Greater Vancouver Area, getting multiple offers and selling for over asking price.  Sometimes this is simply because a desirable home catches the eye of more than one Buyer, and they keep bidding until one offer (the highest) remains and wins the home.

However, sometimes the Seller/Listing Agent strategically "under-prices" the property, with the purpose of attracting multiple offers and bidding wars.  The hope is that the bidding war will drive up the price to (or above) what the Seller wants to sell for.

There are numerous pitfalls if you chose this strategy:
  • Some Buyers are turned off from the idea of going through the process of a bidding war, thinking they will end up overpaying, and opt out of making an offer entirely.

  • You may get several lower priced offers, or only lower priced offers.  Increasing the listing price afterwards might have a negative affect on Buyers minds, because they may now believe the lower price of the home is equal to the "value" of the home.

  • And if the strategy does work, and the sale price of the home ends up to be higher than the Bank's appraised value of the home, the Buyer might not be able to get the mortgage necessary to buy the home.

For a better understanding of the best way to market and sell you property, contact us with your questions.