Is Underpricing a Home False Advertisement?

In the fast-paced real estate market in Wellington, Florida, as a Realtor, I encounter some interesting home buying and selling tactics. Most recently one of my clients fell in love with a bank-owned (REO) home, a bank-owned home that was significantly underpriced.

Before stepping foot inside I knew it was significantly underpriced unless it was missing a roof or covered in mold. So there was the possibility it had some serious issues, and was priced accordingly, either way, my client was very interested in seeing it. As we toured the property my initial thought was right, this property was definitely underpriced. Not only was it underpriced it was by far one of the nicest bank-owned homes I’ve ever seen.

At that point it was pretty clear what the bank’s intentions were, they wanted to create a buzz and attract as many potential buyers as possible. By doing so there would be a strong likelihood the price was going to be driven up by multiple offers. While this underpricing strategy can be effective in generating interested buyers and maximizing the sales price, it is not without its complexities and oftentimes can leave buyers confused.

As our home tour came to an end my client made the decision to submit an offer. However, before doing so we sat down to review comparable sales and what a realistic price would be for the home. The list price and realistic sales price were pretty far apart, so I also took the opportunity to shed some light on the purpose behind this underpricing strategy. In most cases, it’s not an attempt to mislead buyers but rather a calculated marketing maneuver.

By initially pricing the property below its actual market value, the bank hopes to attract a large pool of interested buyers. This heightened interest often leads to multiple offers and competitive bidding, resulting in a sale price that more accurately reflects the property’s fair market value.

However, the success of this strategy ultimately depends on buyers’ responses, market demand, and the level of competition.

After an in-depth conversation about underpricing my client understood the purpose but felt it was false advertising, which in this scenario it’s not.

I understood why she felt that way but I also understood why the bank choose that strategy. It’s essential to acknowledge that not everyone agrees with or comprehends this underpricing strategy.

Some buyers may feel hesitant, fearing potential disappointment if they cannot secure the property at the initial low price. This uncertainty can lead to skepticism and a perception of being misled, even if the intention was not to deceive.

As a real estate professional, I believe it’s our responsibility to educate clients about different pricing strategies and their potential outcomes. By doing so, we set clients up for success, so they can make informed decisions and navigate the complexities of the real estate market confidently. In this scenario, the bank’s pricing strategy worked, they received multiple offers in addition to my client’s offer and my client ended up winning!

Final Thoughts

While underpricing a home can be a viable tactic to generate interest and increase competition, it is vital to approach it with transparency, especially with buyers who are new to the market or don’t even know this pricing strategy exists. By ensuring that all parties involved are well-informed and have a clear understanding of the strategy’s purpose, it will create a smoother home buying and selling experience.

Please consider spreading the word and sharing; Is Under Pricing a Home FALSE Advertisement?

About the Author

Top Wellington Realtor, Michelle Gibson, wrote: “Is Underpricing a Home False Advertisement?”

Michelle has been specializing in residential real estate since 2001 throughout Wellington Florida and the surrounding area. Whether you’re looking to buy, sell, or rent she will guide you through the entire real estate transaction. If you’re ready to put Michelle’s knowledge and expertise to work for you call or e-mail her today.

Areas of service include Wellington, Lake Worth, Royal Palm Beach, Boynton Beach, West Palm Beach, Loxahatchee, Greenacres, and more.

Is Underpricing a Home False Advertisement?