In a seller’s market like today’s, multiple offers are common. This means more options, and more money, for home sellers. Under these conditions, bidding wars often happen organically, driving the sale price high above asking. But is there a way to jump-start the process? And should you?
Do low list prices encourage bidding wars?
Deliberately listing your home for slightly lower than its fair market value is one tactic that can help spark a bidding war. Lower prices can incite increased interest in a home and competition among buyers.
When it comes to determining listing price, “price your home to be in the market, not just on the market,” says Kimberly Jay, a real estate agent with Compass in New York City. “The price of the home should be on the lower side, not the higher, so that more buyers will view it as a compelling choice and quickly take a look.”
Jonathan Lahey, an agent with the Fine Living Group at EXP Realty in Rockville, Maryland, agrees. “Pricing a home lower creates a perception of value in the eyes of the buyer, attracting them to come and see the house in person,” he says. “The strategy that can create the most demand for the house is the strategy that will deliver the highest price.”
But that strategy doesn’t come without risks. It’s important not to go too low — you don’t want to list your home for significantly less than you are prepared to accept. After all, there’s no guarantee of a bidding war to drive the price higher.
Bidding wars did become much more common in the seller’s market of the past several years, especially with inventory at record lows. “But, with interest rates above 6 percent, homes are starting to sit longer on the market,” says Jay. With lessened demand, bidding wars become less common, creating the possibility that your low list price will generate equally low offers.
A bidding war is also time consuming, and can be emotionally exhausting for hopeful buyers. Many are intimidated or otherwise put off by the process. As a seller, it’s important to consider whether the potential reward is worth the risk.
Other ways to jump-start a bidding war
In exceptionally hot local real estate markets, tactical strategies may not even be necessary. Walter Rock, broker and owner of ROCK Properties in the Austin, Texas, area, jokes that “in Austin, putting your house up for sale is usually all it takes to start a bidding war.”
For sellers outside the Austin market, there are still many options to help give your listing a nudge. Here are a few from David Greene, a broker with Keller Williams in the San Francisco Bay Area and co-host of the BiggerPockets real estate podcast.
- List at a time when there are no, or few, comparable homes for sale in your area.
- Have amazing pictures taken.
- Get the home in tip-top shape — this includes making sure it smells good, too.
- Make it available for any and all showings.
In addition to these tips, the standard advice for putting any home on the market still applies. “Paint, declutter and stage your home so it is seen in its best possible light,” says Jay.
Bidding war pros and cons for sellers
There are benefits and drawbacks on both sides of the bidding-war equation.
- Higher sale price
- More options
- Potential for faster closing
- Possible backfiring
- Buyer’s remorse
- Higher sale price: By definition, offers in bidding war escalate as it goes on. The situation can often cause buyers to act on emotion and pay whatever it takes to win, which means you make more money on the sale.
- More options: Multiple offers mean you can be picky and choose the best offer for you. The highest offer isn’t always the best — maybe you’d prefer a later closing or an all-cash deal. Additionally, should a deal fall through for any reason, you will have backup offers lined up.
- Potential for faster closing: Bidding wars often yield non-contingent offers, in which the buyer waives certain contingencies in the hopes of making their offer more appealing. This can speed up the process and get you to the closing table quicker.
- Possible backfiring: Lowball list prices do not guarantee a bidding war — and may simply result in lowball offers. In addition, trying to counter an offer in the hopes of a higher price does not always work, which can waste time and result in the loss of an otherwise qualified buyer.
- Stress: Bidding wars are fast-moving and often driven by emotion or a sense of competitiveness. This can scare some buyers away.
- Buyer’s remorse: If a buyer gets caught up in the heat of the moment and pays more than they were comfortable with, they may get cold feet and look for ways to back out of the deal later. “I’ve seen situations where the buyers refused to send in their earnest money deposit after being the winner of an intense bidding war,” says Greene. “They simply change their mind and don’t move forward with the sale after the excitement of the auction type environment wears out.”
Sparking a bidding war can be a winning strategy to net the highest price possible on your sale. Listing your home for slightly less than it’s worth can be an effective way to drum up interest. But remember, bidding wars aren’t a sure thing — consult with an experienced real estate agent before undertaking any potentially risky sale strategies.
Written by: Rae Hartley Beck