Why Not Price Your House At $1?

32 Lake Aveune, asked $749,000. Got $1.1M.

32 Lake Avenue, the owner assumed the house was worth $900,000, so asked $749,000. Got $1.1M.

Blogger Chris Fountain was extolling the virtues of good pricing, even deliberate under-pricing, so one of his (dopier) readers responded sarcastically, “By that logic, all houses should be priced at one dollar.”

Well, yeah, but no, do not list your house for one dollar. Not because it wouldn’t work, it probably would, but the fact is, you don’t need to. Market “magic” will occur at a price that is merely low. Also, at $1, or other silly asking price, you risk making your listing look “gimmicky”. A buyer of valuable art might go for it, but the buyer of a primary residence could possibly be turned off. So how do you price your house? There are five ways.

Let’s assume your property is worth $1,000,000. Here are the five ways you can present it to the public:

1.  Grossly under-price ($700,000)

2.  Slightly under-price ($899,000)

3.  Price “to sell” ($1,000,000)

4.  Slightly over-price ($1,100,000)

5.  Grossly over-price ($1,300,000+)

The first two options will get you a bidding war, guaranteed.

Option 3 (priced to sell) may get you a bidding war, but the problem is, you don’t really know for sure what your house is worth, no one does. Brokers (and appraisers) are always capable of under-pricing a house, but they don’t know with certainty what the market will decide your house is truly worth. If they’re right about your $1M house, that’s good, you’ll get a small bidding war at that asking price. But if they’re wrong, and the market decides your place is only worth $950,000, you get no bidding war.

Most sellers go with option 4, slightly over-pricing their house, believing they need that little extra for “negotiation”, That’s fine, and it usually works out ok for them, they may get their $1M eventually, or maybe somewhere in the $900’s, but it won’t be a disaster, and they’ll be on and off the market in a few months. They eliminated any chance of getting more than their house was worth, but the process felt “safe” and “orderly”, so they’re happy.

The real disaster awaits the gross over-pricers. These are sellers who use phrases like “We need to get [some amount] for our house”, and who, after six months on the market, revert to phrases like, “We just haven’t found the right buyer”. They take what should be a relatively simple process, lasting 30-90 days, and turn it into a multi-month/multi-year ordeal. Do not do this.

4 thoughts on “Why Not Price Your House At $1?

  1. It would be interesting to see an analysis of those buckets – initial list price, days on market, closing price. I would bet that most homes that sell in a reasonable time frame are being sold at about 10% below list.

  2. I agree Gid. We have employed the “modest underpricing” strategy (#2) on the last 4 houses we sold. All in different neighborhoods and in different markets. All went for bidding wars, at prices higher than anyone initially thought. Ka-ching. (And I trade for a living.)

    • How much of a factor does the ” market environment ” play into what price finally trades . Cant disagree with your anecdotal evidence but this is a seller’s market so I’d argue, given current low inventory , rates looking like they have bottomed , Armageddon in NY with DiBlasio, etc., a bit easier to sell one’s house.

  3. Itch:
    Here is our own experience: 2 of our houses were sold in normal environments; 2 were sold in terrible environments (a NYC co-op that we sold just after the 1987 crash, and our parent’s Chicago suburban home that we sold just after the 2008 crash).

    In the terrible environments, brokers were hungry to do deals (because their commission checks had dried up), but buyers were extremely scarce. By employing the “Gideon Strategy #2”, we were able to command significant focus and obtain a satisfactory price.

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