Knowledge of competitive bidding can be indispensible

In a hot seller’s market, setting a list price that’s lower than market value can be an effective strategy as long as you combine it with an aggressive marketing campaign. The theory behind this approach: If you expose an underpriced listing to a broad-enough segment of the market before accepting offers, the market will establish the price through a process of competitive bidding.

In order for this strategy to be successful, your property must be in a desirable location. It also must have qualities that are in high demand, such as excellent condition, a coveted public school district or good upside potential. Lastly, this strategy is most effective in markets that lack enough homes for sale to meet the demand.

For instance, a listing came on the market in North Berkeley, Calif., at the end of June. It was a charming, sunlit home with enchanting gardens, a remodeled kitchen and master bath. And, it was located on a desirable street within walking distance of Solano Avenue, a popular shopping district. Given the increased number of buyers looking for good homes within proximity to shops and cafes, it wasn’t surprising that the listing received offers from four different buyers. The listing sold for considerably more than the list price.

Some sellers in markets that were formerly hot but have subsequently softened are still using this pricing strategy, hoping that a low list price will yield a higher sale price. Whether or not this approach works depends on the character of the home sale market in the area. There are still pockets of the market where listings are in short supply, as in the above example.

However, there are pitfalls with this strategy, particularly in a market where buyers are holding back from making offers. If you’re attempting to sell in a soft market, you could be sorely disappointed if you offer a tempting price expecting a much higher price and find that not a single buyer makes an offer.

Your options are limited in this case. You can take your home off the market and re-price it at a price you would be willing to accept. However, if your first price was out of line for the market, you may be wasting your time trying to resell for an even higher price.

HOME SELLER TIP: To be a successful seller, you need to manage your expectations. Don’t set yourself up for disappointment by scheming for ways to generate more offers and a higher price in a market where you should be grateful for one offer at a reasonable price from a well-qualified buyer.

The real estate market is continually in flux. Sales information from six months ago may be out of date in terms of establishing a realistic market price for your home.

Focus on the most recent sales information you can find in your area.

Sellers who don’t like what they hear about the probable selling price of their home should seriously consider if it’s the right time to sell. Having a home on the market priced over market value only serves to help agents sell the well-priced listings in your area.

It does nothing to help your cause. You would be better off waiting until the market improves if you can’t bring yourself to sell at current market value.

THE CLOSING: Using gimmicks to attract buyers, such as a free trip, may increase the number of showings your listing receives.

But, it’s unlikely to result in a sale if your listing is priced too high. Buyers are not overpaying in today’s market.

Dian Hymer is author of “House Hunting, The Take-Along Workbook for Home Buyers” and “Starting Out, The Complete Home Buyer’s Guide,” Chronicle Books.

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