A seller I was working with recently asked me a fair question: “Why wouldn’t we just list at the price we want? If we list our home below its expected value, won’t the offers that come in be at that lower price? Wouldn’t we be leaving money on the table?”
What I explained is that the list price isn’t only a valuation. It’s a marketing strategy.
The price determines which buyers find the home online, what they expect before they walk through the door, and how quickly they feel they need to act. I don’t think of this as the “list price” I think of this as the “Initial Asking Price”; we are offering you home at an initial price and expecting some sort of movement, and the market determines the movement.
What Is Strategic Underpricing?
Strategic underpricing means listing a home slightly below its estimated market value to attract more attention and encourage competition. The goal isn’t to sell for less. The goal is to create enough demand to influence buyer psychology and encourage higher and better offers.
Think of it less like putting a price tag on a shelf and more like establishing an opening bid, this is where my idea of “Initial Asking Price” comes from. The market still decides what the home is worth. The strategy tries to bring that market together in one place and at one time.
When Underpricing Can Work
Let me give an example: I listed a house for $375,000 in New Berlin. It was a ranch, had 3 bedrooms, 1.5 baths, and was on a corner lot; a beautiful home. We listed just under what we thought the market would bear based on local comps and my knowledge of buyer demand in the area. I marketed the property (which can be its own article), and had over 70 families come through my 2 open houses. By Saturday morning we had 6 offers in hand and by that night had an accepted offer $30,000 over asking price.
What does this tell us? Underpricing can work if the circumstances allow it to. Underpricing won’t always work, which is why we don’t have a hard and fast rule about it. Strategic underpricing is most useful in a strong seller’s market with limited competing inventory and an active buyer pool. You, as the seller, also have to be comfortable with the process. It can produce a strong result, but it can also feel uncertain and stressful, and there is no guarantee that buyers will bid the home up to your preferred number.
Why Buyers Respond
Buyers experience the home buying process emotionally. They see the photographs, compare the home with others in their search, estimate the monthly payment, and decide whether it feels like an opportunity.
That’s the most important part. How does it FEEL?
That feeling creates urgency. More buyers save the listing. More schedule showings. And many become emotionally invested after they walk through it. Once they know other buyers are interested, they feel like they need to act fast. They are no longer negotiating only against you, the seller. They are competing against one another.
Even with all that, the number of offers can be misleading. Ten offers doesn’t always mean ten strong offers. In practice, it may come down to more like two or three serious buyers.
Compress The Showing Schedule
An intentional by-product of underpricing the market means that buyers want to see your home as fast as possible, as mentioned above.
Your home receives its strongest burst of attention when it first hits the market. Buyers who have been watching for weeks receive automated alerts. Their agents notice the new listing.
Instead of spreading a modest number of showings across three or four weeks, a strategic launch tries to concentrate them into the first few days. The home might go live before the weekend, allow showings through Sunday afternoon, hold a few open houses, and review offers Sunday night.
I was helping a buyer recently and this strategy was used against us. The home had gone live Friday (I like Thursday better, but that’s by the by), I had seen it in ‘coming soon’ status the day before and asked them if they wanted to see it. We booked a showing online and the calendar was lit up like a christmas tree, showing after showing after showing, a bunch that overlapped as well. We went to our showing and later that Friday I went to the twilight open house and there were dozens of families there. My buyers ultimately decided the property wasn’t for them, but seeing all the potential buyers clamouring to get a look really pushed them to decide fast; was this the one or not?
When You Shouldn’t Underprice
Do not underprice simply because bidding wars sound good.
The strategy is risky in a slow or buyer-heavy market. If buyers have a bunch of similar homes to choose from, they may offer the initial asking price or less. They have little reason to compete.
It can also be a poor fit for luxury, rural, or highly customized homes. Those types of homes may need more time to find the right person. Compressing the launch doesn’t help if only a handful of qualified buyers exist.
That’s why doing buyer demographic research is especially important when thinking about underpricing your home, and just pricing in general. For example, for homes in Southeastern Wisconsin over about $700,000 this strategy doesn’t make sense the buyer pool just isn’t big enough.
There is also another risk when the strategy works too well. If competition pushes the final offer above the appraised value, a financed buyer may need cash to cover the gap. A high offer with no realistic appraisal plan may be weaker than a slightly lower offer with better protection for the seller. Which is why when accepting offers that are over market price, which underpricing can bring, we normally want to look for an appraisal gap in the offer which is just the buyer saying they will cover the spread if the appraisal comes in low.
The List Price Is A Strategy
Strategic underpricing isn’t about selling your home below its value. It’s about using price to create attention, then using preparation and marketing to turn that attention into real demand.
Exposure creates interest. Concentrated interest creates urgency. Urgency can create competition. Competition can produce a stronger offer.
Price based on the market. What I’ve learned using this strategy is that you can rarely underprice a home, but you need to understand that if your home doesn’t get the price you were hoping for it’s normally one of three things: price, condition, or time (this will be expanded on in an upcoming article).
You only get one first day on the market, and you only get one chance to choose the initial asking price.
If you’re considering selling your home in Southeastern Wisconsin reach out to us here at Wisconsin Haven Realty and we can have a free consultation and show you the best strategy to get the most value from your home sale.