[flickr size="medium" float="left"]http://www.flickr.com/photos/42659427@N02/4156178432/[/flickr] I recently put in an offer on behalf of a great client of mine, and the strategy of the listing itself made me think. The agent's (perhaps the owner) made the conscious decision to price the property at or slightly under market value in an attempt to build a buzz of interest. The play was to price it slightly on the low side and hope for multiple offers to bid up the price and maximize the return. They certainly did not invent this strategy, but it is interesting in the current real estate environment where everyone is negotiating everything because they feel like they can. These are made up numbers and not the ones in the deal I am involved in, but the question is which is the better way to maximize the value for your client: Ask $725,000 and accept offers in the $675,000 range, or ask $650,000 and hope people bid up the value over $700,000?
My thought and usual plan is to think of the psychology of the buyer and allow them to feel like the are getting a good deal. By this I mean, ask slightly over market value and allow someone to "negotiate" the price down. This can also be tricky, as you don't want to price it too high or buyer's won't come and look at it in the first place. If done well though, both sides can end up right where they want and each walk away happy. This is the key to negotations in my opinion, especially in real estate, as there will be an escrow process with multiple other opportunities to negotiate and a necessity for both sides to work together toward the closing of the deal.
Lastly, in the deal I am involved in, the agents are waiting until they have the first open house and broker open house before presenting the offers to the owner. Clearly they are expecting their strategy to work and have multiple offers on the table for their client at that time. I understand the thought process of course, but my offer was stellar, and my suspicion is that if the owner knew about it he would sign it right away. Perhaps the owner wanted this way. In the meantime, my buyer and I will continue looking as well, and I hope for their sake they don't lose us in hopes of some ridiculous offer. The latter of which is tough in today's market, where buyers ultimately have the upper hand currently.