Why Underpricing to Obtain Multiple Offers can Help You with an Undervalue Appraisal

A Story by Michele Kreinheder | Updated 07/28/2014 9:16am


 

I was thinking the other day how we Realtors frequently say  “I could write a book” or “that is one for the book” about transactions we have survived. Well, I thought, why not take these words to heart and blog these stories.  It will satisfy on so many levels; cathartic for me and useful information for clients.One for the books

Case Study #614

We put an extra beautiful Los Altos home on the market and fought with the seller to keep the list price lower than they thought the house was worth. They were relocating out of state and needed the home to sell in a timely fashion but at the highest price possible.  By keeping the price low I knew we would get multiple offers quickly, allowing us to bid the price up. We had two offers at $680,000 with well-qualified 20% downpayment buyers.  Buyer #1 didn’t not send their Proof of Funds (POF) and were being represented by a close relative. (Note to self - Do a blog on dangers of using family members or close friends as your Realtor). The sellers accepted Buyer #2 offer because they showed an inordinate amount of cash in their POF.

As luck would have it the buyers’ appraisal came in low, at $640,000 or $40,000 below the offer price.  With a low appraisal everyone has a decision to make. The seller can demand the full offer price, in this case forcing the buyer to come to the table with their 20% downpayment ($136,000) plus $40,000, or the seller and buyer can re-negotiate the offer price.  If we only had one offer re-negotiating probably would have been the coarse taken, but the second offer had kept in touch just waiting for this deal to fall out of escrow. Unbelievably, Buyer #1 decided to come to the table with the extra cash and even allowed my clients to rent the home for a full month while waiting for their out-of-state home to close escrow.

Moral of the Story: Underpricing is good strategy. 

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Michele Kreinheder
Real Estate Group
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