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Chairman’s Message: Pricing Strategy Draws Debate

Quincy Virgilio: MLSListings Inc 2015 Chairman

Quincy Virgilio
2017 Chairman, MLSListings

Recently, a home sale in the Bay Area received lots of attention because of the significant over-asking price of the sale. It’s possible the home was underpriced to generate interest and, no doubt, to secure a notable sale price for the agent’s client. If that was the case, was this a smart move or a deceptive one?

In a recent informal poll by MLSListings, we asked this question and received some interesting results and comments to what proved to be a polarizing topic:

  • Of the 44 respondents, nearly 41% felt that the move to place a low-ball price for a listing was completely justified because it will generate multiple offers and ultimately get the client a higher price than if the property’s listing price was based on comparables for the market.
  • Half of the respondents (50%) believed that such a move makes agents and brokers collectively look unprofessional and unethical.
  • Just under 7% (6.8%) had no opinion either way; they just want more inventory.
  • One person didn’t complete the poll but added a comment, accounting for 2.2% of the response.

Perhaps more telling are the anecdotal comments that accompanied the survey responses. Here is a sampling of those comments:

‘There should be a sense of Integrity, Ethics, Fair/Honest Dealings and Sincerity of Intent that comes along with setting the List Price of a property on the Market. Anything more than perhaps 3-4% above or below Recent Sales Comps smacks against the above traits and, in fact, may well help support the long-time reputation of Real Estate Sales People – down at or near the bottom of the list with the Used Car Salespeople! How can we ever soar with Eagles when we fly with Turkeys? Amen!”

“The problem with underpricing is people think they can actually buy it for that price. I think you need to be within $50,000-$100,00 or where it is expected to sell.”

“It depends on the location. An underpriced home in a slow selling location could potentially backfire, leaving the sellers with lower than asking offers. The trick is to research and study the market before attempting to list under market price, especially if you hope to obtain multiple offers to drive the price up.”

“1 or 2% is OK. Intentionally, grossly under-pricing should be punished by a fine of loss of license.”

“It’s a waste of the buyer’s time.”

“In the market today, buyers are used to over-bidding, so it’s important to not over-price because they know they will most likely have to go over that list price.”

“This is a devious, misleading and dishonest practice.”

“If this is an auction and we say, ‘ok, bidding starts here,’ then it’s okay…otherwise we are playing a very unprofessional game with the public.”

“Pricing a home just below the most recent comps and current neighborhood value is a good strategy to generate quick interest and most likely, multiple offers. To price a home well below current comps and neighborhood value is simply irresponsible because it will give buyers false hope that they could get a home for that list price in that neighborhood when it is known that is not true. That behavior makes agents look ridiculous.”

“It is our job, per the Code of Ethics, to not purposely mislead the general public on home values. If the seller has been given all the information and still chooses to go the route of under-valuing their home to instigate a bidding war, that is their right to do so. As long as they are fully informed, which I predict most sellers who go this route are not fully informed.”

My own position on the topic is that our clients look to us for professional counsel and they expect that advice to be based on our market knowledge, the analytics tools at our disposal, and the experience we bring to the table. More importantly, they count on our integrity and that we are looking out for their best interests, not our own.

The market dictates what the asking price should be for a home and we are supposed to know the market, interpret the data, and provide information to the seller about the true value of their home. The seller ultimately makes the decision on the listing price, but we are responsible for reflecting the market dynamics and not using pricing strategies for our own interests, such as making us look good to the seller.

It appears the MLSListings Subscriber Community is nearly evenly split on this topic. If you’d like an opportunity to cast your position, the poll is still open. You’ll be able to see all the comments and add your own.

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