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Is Underpricing a Good Strategy?




You will start to see some changes, albeit positive changes, to better serve you! Coming next month is a website that will help us market properties for our home sellers and give buyers better opportunities to search for homes. I will also do a better job of showcasing our brand and highlighting other members of our team. We are changing but know that we are changing to better serve you, filling in our gaps with not only technology but also people, so we don't lose sight of what is most important that is the people and the relationships. The weekly emails are going nowhere, the layout might change but all the content is still coming directly from our hearts.


Is Underpricing a Good Strategy?

Homes selling for well over asking price, and no subject conditions, that has been the story portrayed in the last year regarding the real estate market. While homes selling over ask is relatively indicative of the initial stages of how hot a market is, that number (the ratio of homes selling over ask) in my opinion is a somewhat useless ratio and not one to be bragging about especially after being in the market for a year for now.


I know I used the same ratio a couple of weeks ago, to gauge how much interest is in the current market in comparison to the new inventory coming on the market, there is a place for it, oftentimes how I see it being used it is not one I would hang my hat on especially when it is being marketed by my peers.


Really, this comes down to the pricing strategy of a home and what pricing strategy works for your type of home, and how much interest you, the seller, is hoping to generate. In one way, setting the price so low to generate more interest is a strategy that only works in sellers' markets and well, if you haven't heard yet, we are in a seller's market. The other, more traditional, method of pricing is putting the price higher and either negotiating down or in some instances waiting until the market comes up.


At the end of the day, we like to leave the pricing up to you, the home seller, as there is one major factor that sometimes is overlooked when selling a home, which is timing........ When do you need to move? or have your home sold? This will dictate the marketing strategy we go with.



. The market is the market, and depending on the strategy the market value relatively should end up the same place regardless of pricing strategy. As you can see in the image above, pricing the home at the market value or what is perceived as the market value, you should expect about 60% of potential buyers to look at your home. Pricing the home above market value by 10% you only capture 30% of potential buyers and on the flip side pricing the home 10% below market value you capture 75% of market value. The one thing this chart doesn't factor in is timing, when do you need to move by? or have your home sold by? Some sellers have specific timeframes, some are flexible. This is the main factor we will normally look at when pricing a home. Flexibility, in the timeframe portion, allows us the opportunity to try a few different options and see if we can get a higher dollar (normally while spending more days on market), whereas if the timeframes are constrained the options are more limited. Purposely underpricing a home can sometimes set you up for failure if you do not get the price or terms you are looking for. If the market slightly changes or interest rates increases scare off buyers, there are a number of factors that might set the sale up for failure. Buyers are having a tough go in this market and you could also scare some buyers away from making an offer as they feel it was underpriced to create a bidding war which maybe they don't want to get in. We can often adjust from there, but sometimes it is an uphill battle as we lost some trust in the buyer pool(all depends on how bad someone wants it and the emotions your home brings them) This is currently happening in this market, where we have seen 8 price increases in the last 7 days or we take it down and relist at the adjusted price.

In comparison, we have seen 37 price decreases this past week. As a buyer, that's good news that you may be able to make offers under asking on a place that doesn't sell right away. Stay persistent, and sometimes don't be afraid to make an offer if there are no other offers on the property, you never know the other side's timing. As a real estate agent, we don't have a crystal ball, and this market is very unique and dynamic in the sense that comparable sometimes don't seem to matter at times, as buyers are making emotional decisions. We normally will know, within the first week to two weeks, how the price is being received in the market, with 50% of the buyers being from out of the Central Okanagan we are constantly seeing new buyer pools come into the market, with restrictions now being lifted and the highways thawing out, there is a chance we see out of town buyers move more freely. Looking at the actual numbers single-family homes right now, in March so far, are selling for 100% of the asking price. Compared with the 10 year average of 97.62%. In 2021 the ratio was the same at 100% with the previous the next closest year being 2016 which was 98.28%. So far in March, the townhouse market sold at 101.3% of the list price. With the 10-year average being 97.63%, as buyers are being priced out of single-family homes, the next best option appears to be townhouses and appears to be the most competitive market at the moment. Last year aside, that saw most of the ratios in the 100% range for each month, the next closest was February of 2017 that was at 99% and the condo market is currently at 100% compared to the next closest (with the exception of last year) of 98.31% in 2016. Why do these ratios matter? It gives you an idea of how competitive the marketplace is in each segment and market. If no one else is offering on the home then that ratio typically will go down. Strengths of offers come into play when the competition goes up. To answer the initial question in the title if underpricing a home is a good strategy, the answer in my opinion is it depends. It depends on the client's wants/needs and what the home has to offer. Personally, I prefer to avoid this strategy as it can not only fatigue you as the seller but also fatigue buyers potentially, unnecessarily bringing people through that might not be able to afford your home for a price that you won't be willing to sell it for. With the question on the pricing next comes the question on timing. There has never been a better time to sell your home than in this market, with strong offers and with more competition, the subject conditions are minimal in this market meaning to the seller there is less left unknown as buyers sometimes depending on the house will waive financing and the dreaded inspection. But where do you go? There are ways you can be protected, whether it's putting a subject to the seller finding a home clause in the contract, renting the home back, or extending the possession date out to late summer. The sellers in this market hold all of the cards, if you have been thinking about selling this year, there are options. There are options and as inventory rises it often is good to be looking now before much of the demand comes with the warmer weather. Have a great week and feel free to reach out with any questions or if you want to run your scenario past me to see if maybe there is a way we can achieve your goals. ~Mark.

Mark Coons

REALTOR®

(250) 801-0361