Selling Property: Do You Overprice or Underprice?

Most home or property sellers, if asked whether they would prefer to overprice or underprice their property, would likely list their property for a higher value in hopes of either getting lucky, or negotiating down to a price that yields a high selling price.  And, in fact, overpricing property may draw higher initial offers.  But, there is also a school of thought that overpricing only works when inventory is low because there is less competition.  Depending on a number of factors, therefore, there may be a good reason to underprice the property.  This is because buyers are always looking for a bargain and if the seller starts low, the seller can essentially create a bidding war between a number of purchasers.  Of course, this approach always runs the risk that there will be more than one potential buyer ready, willing, and able to purchase the property.

The Wall Street Journal, in an article entitled Should Home Sellers Overprice or Underprice Real-Estate Listings, discussed the economic behavioral trait called anchoring.  Anchoring is when a consumer relies too heavily on the first piece of information offered when making decisions, namely the initial asking price.  Any subsequent decisions or judgments are made by merely adjusting away from the anchor and there is typically a bias toward interpreting other information around the anchor price.  In the real estate context, the initial price offered for property sets the standard for the rest of the negotiations, so that prices lower than the initial price seem more reasonable even if they are still higher than what the property is actually worth.  Therefore, the concept of anchoring indicates that sellers should overprice property.  On the other hand, underlisting can speed up the sale process, which saves agents and sellers time and money.

In a world where time is money, underpricing may seem to be the intuitive approach to selling property.  On the other hand, each piece of property is unique, and no one approach should be used consistently.  Doing what is best for the seller and analyzing the market conditions as well as various other factors is usually the best approach.

Do you have any thoughts on whether property should be overlisted or underlisted, and why?