[M04/S15] The Virtue of Underpricing your Home

For some homes – in particular newer tract homes in a particular subdivision – it’s going to be fairly clear what the market price of the home is. If that is clear, then go ahead and list it at that price, and expect that you’ll get full asking price. If the price is clear to you, it’ll be clear to other buyers as well – which is why it’s an especially bad idea to over-price a home in this case, as buyers will shy away from it, because it will look obviously overpriced.

However, many homes are in neighborhoods where prices are really all over the map, and given all the factors that go into determining market price, it’s possible that you’ll figure your home is worth something within a range of values – say between 500 and 525 thousand dollars. In cases like this, the wise seller will price the home at the low end of the range.

Why’s that? Because the economic principal called price elasticity of demand will work in your favor. It’s simple: demand for goods like real estate is elastic relative to its price. That is, when the price gets lower, demand gets higher. Some goods are inelastic, and the demand for them will not change much with fluctuations in price.

It turns out though that real estate is a product that does experience considerable elasticity of demand. When the price is lower, demand Is much stronger.

You’ll want to make sure that you give the market time to work its magic. Plan to have the property on the market for 10-14 days. This will give enough time for enough buyers to get wind of the property for sale, check it out, get their pre-approval letters, review any disclosure documentation, and write up careful, well-considered offers. If the price is indeed low, you’ll have multiple offers, which can be worked to drive the price up to the most the market will bear.

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