Can you underprice a property?

The question is "what is the difference between the highest offer you'd receive vs. the second highest offer?"

IMHO, unless there's something unique/special about your place, you don't miss much with such a strategy.

usual wisdom will tell you the market will determine the final price. However, it needs to be marketed properly so the most number of people possible view it in the correct amount of time. Maximum exposure equals maximum price.

In a perfect market with wide and open diffusion of information, I don't think you would miss much. However, the NYC market is still rather opaque, less than in the past thanks to Streeteasy and Urbandigs, but not a perfect market at all. You can create a perception of value and desireability by pricing high, anchoring a property to a better set of comps. People truly are not rational, they don't necessarily know what they want, they can be swayed by enthusiasm and competition. You are asking a subset of highly-educated (some would say obsessed) real estate wonks. If you were selling to only these people, opening at $1 would get you an efficient market bid. You'd miss all the dumb people who think 10% off ask is THE sweet deal, and you know what? They have more money to spend.

It's all an auction anyway so I think the only thing you are trying to achieve with your ask is to demonstrate a desire to sell. Buyers like that. Once they start smelling a deal you can't keep them away.

My last 5 properties were priced below market and sold above market within 2 weeks. All were in very different markets in two countries (Dallas, NY, Calgary, Banff, Victoria) I don't think it would have mattered what the ask was, as long as it was below what the market expected. This will only work on a good/prime property, otherwise you're opening up a can of worms.

Consumer behavior will always be heavily determined by psychological factors, so that strategy works best during feeding-frenzy times, ala the staged bidding war. In a market like this, not as much

... although Alpie has argued that that's exactly what happens at foreclosure/tax auctions: buyers, salivating at the belief that all sales are bargains, always overbid.

A sellers market is definitely favorable to this approach.

One would think the opposite. Definitely underpricing below the market is good, but I'm getting the sense that you don't want to underprice too much. Hmm, interesting. I'm getting nervous again with the NYS/NYC shortfall. Now might be the time to exit to socialist motherland :)

I think there are also a lot of sellers who(at the onset at least) are not prepared for what the market is for their apartment. Sometimes the market is screaming at them and they become conveniently deaf :)

So, KeithB - what is the downfall of pricing at $1?

In a word, yes. But you ultimately want to target the right 'group' with your pricing. If you have a $5m property that you list for $1m then all the people looking in the $1m range are going to be all over it, and hey, you may even have the price double if it is truly worth $5m. But all those $5m buyers are going to miss it because they realistically wouldn't be searching from $1m-$6m, it is too broad a range.

Do comps and figure out what seems like a realistic price. If the last 3 apartments in your building sold at $1000/sqft and were listed at $1500/sqft then by pricing your apartment closer to $1000/sqft you are really going to be listing it at 'the market price.' Keep in mind that people always want to negotiate so you need to factor that in slightly. But when someone who has been looking for a while finds an apartment that is priced correctly it will sell in a heartbeat.

I have recently advocated for a similar strategy with a few sellers. Most are afraid to take this route. I think this strategy is actually best in a situation where you are in a mediocre location surrounded by similar comps that have been on the market for months. It is certainly easy to spot these particular trends.
It's not easy to face the reality of what your home is worth TODAY and let go of the idea of what trades took place 2-3 years ago. If you have a AAA location/home then pricing becomes much easier and you will be fine pricing according to very recent sold comps/signed contracts in your neighborhood/building. Although pricing a tad lower than "market" could generate some heat and the (faulty) behavioral traits of humans will come into play, perhaps to the sellers advantage.

The market has certainly picked up I won't argue with this, but there is a substantial BEAR market out there for a large segment of inventory.

Keith (broker)

Nyc10023? If you even have a 50% chance of leaving NYC in the next 5yrs, sell and rent trade will be a 100% better trade IMHO. The god of lemmings has given you a little stall bf the final capitulation in nyc. Take it while you can.

I love 'em lemmings. Could we make lemming bulgogi? Why not 10 yrs instead of 5 yrs? The truth is, I am ultra-lazy although I shouldn't be. The thought of keeping the place in show condition has me breaking out in hives. My attempts to short the market have failed. That's why the $1 start bid has its attractions for me, I'd feel (maybe foolishly) less inclined to make my bed in the mornings.

What strikes me as the perfect way to deal with this market (assume not moving, but want to take advantage of market fall): take out max HELOC and use the $ to either invest or have the $ in my pocket should I chose to walk on the mtge if equity goes -ve.

The $1 idea is a bit gimmicky, and I completely understand the idea that at a dollar it will be so cheap you will bring lots of people in. But at that point you are going to get lots of people who are probably not qualified. Remember, price is only one part of the equation, and in some cases it isn't even the most important part in selling.

Regarding show condition, everyone knows that you need to live in your apartment. This is to say that you should keep it neat, but don't freak out about it. An apartment that is in perfect shape does help sell it since the buyers will be more focused on the space instead of what is in it (a real problem at times). You don't need to dramatically change your life just to sell a place though.

And yes, at the very least, make your bed :)

It's not 1 bed, it's 3 beds! Add to that the breakfast and lunch and dinner table messes. Can't deal. Suppose a temporary live-in whose sole job was to tidy up 24/7 is doable but annoying (like my privacy).
When I contemplated selling before, I concluded that I needed a shadow picking up after me 24/7.

That's the thing about asking prices. I feel (maybe wrongly) that if you priced substantially below market, people are less picky about neatness (definitely not a total slob here, but the beds and meal clean-up are my betes noir) and anyway the market is pretty efficient.

The RE market doesn't seem that efficient to me, so much hinges on the asking price. Too much, IMO.

No comments on my question about taking out equity?

Say I have 40% equity. Take out HELOC (assuming someone will underwrite this) to bump up to as close to 0% equity as possible. Use $ to short the RE market (assuming this is possible). I can't see a hole in this, other than it being really hard to short the RE market.

If you want to underprice your property, that is one thing. But starting at $1 will just attract the unqualified bottom dwellers. You need a higher opening price to filther the buyer pool. Bid on the City just had an auction where the starting price was $1, and the highest bid one apt. got was $50,000. I'm sure you don't want to suffer the same fate.

Don't HELOCs have LTV requirements?

My answer to the original question is 'yes...if' you don't give yourself enough time for the whole market of buyers to see your place. Time is the difference. If you sell fast, sure, you can under-price. If you sell slowly...likely not.

Not in the good old days, not sure what the scenario is now.

MRussell is right--the answer is yes, you can underprice a property.

The people who have contributed so far sound like people who have not personally bought a lot of real estate themselves.

And here's what I think when I'm a buyer if the price is too low: What's wrong with it? Something has got to be wrong here....This is especially true, for me, if a broker has the listing, because that means the broker knows something bad I don't know (yet). (You can sometimes think a FSBO is just uninformed about the market. One tends to assume agents/brokers are not uninformed.)

In economic theory, the price contains all the information one can know about the value of a particular commodity. If the deal seems too good to be true, the theory goes, then it must be so.

What's more, since nobody has enough time to look at everything, what buyers do, what I do, is decide that I'm not looking at prices less than X dollars. For whatever reason, I make that decision based on what I know about the market, and what I want to buy.

So underpricing by more than a wee bit is a strategy that will backfire in many cases, and definitely result in a longer sale time.

Here's another way to look at this: The list price is the first salvo in the negotiation. You know how negotiation books say you should never be the first one to mention a number? Well, when you're selling property you (almost always) have to be the first one to say a number.

If you offer your apartment for $1, then essentially you are forcing the buyer to be the first to mention a number. But most buyers are not up for that, it's not how the game is played.

If you offer a seriously underpriced apartment, your first salvo raises questions, suspicions, or at a minimum suggests you are negotiating from a postion of weakness, not strength.

Interesting. Then this pushes me into the arms of brokers like Cutbill Lenane who has built a reputation for slightly underpricing the market. So not only does she win because she has consistently done this, but she also has a reputation that buyers like. No, I am not a shill for her. Just saying.

If its not an auction, the $1 is going to make people think you're just wacky.

Underpricing seems to be a great strategy if you're talking a few percentage points below (MUCH better than pricing high and having to come down) but if you go wacky low, people wonder what the hell is wrong... AND folks looking by price range miss it (as others have said).

"The people who have contributed so far sound like people who have not personally bought a lot of real estate themselves."

Fluter, you are really one arrogant sob (dob?)

Are you telling me you'll steer your client from an apt priced 10% below comps at the Beresford just because you "think" something smells fishy and is priced too low to be captured by your lazy price based search?

You're FIRED!

Where is 30_yrs lately? I would really like to hear his view on this question.