What If Listings Were [Actually] Priced At Fair Market Value?

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Statistics show in the past month almost 85% of listings were sold over asking price. 

While it sounds exciting, and reports everywhere are that the market is on fire, it is also causing a lot of frustration and stress for buyers. 

Buyers search the MLS for homes within their budget. 

Their Realtors setup searches for them within their budget. 

Obviously these days any search will result in listings at the high end of that budget. 

Which means there is nowhere for the price to go but up. 

The problem is that 85% of those listings are priced under market value to generate huge interest and multiple offers (often referred to as bidding wars). 

One could argue that when demand is so much greater than supply, you shouldn’t have to underprice a property to sell it. 

So why are 85% of listings priced under fair market value?

1. It increases the chances even more that you’ll receive multiple offers
2. It increases the chances that the property will sell in hours or days vs. weeks on the market 
3. It increases the chances that the offer will be sold FIRM, meaning no typical conditions on financing or inspection.

But what are the repercussions of this underpricing trend?

1. It is increasingly hard for buyers to create a budget, and search within their budget
2. Increasing disappointment for buyers as they fall in love with their dream home, and then lose out in a bidding war, or the price is driven higher than their budget allows for
3. Risk: With no conditions on finance or inspection there should be a huge sign on the front door that says BUYER BEWARE because that term has never been more true.

It’s very important to note that, even if you know your budget, and you’re pre-approved for a certain mortgage amount, if the property you outbid everyone on, appraises for less than you agreed to pay for it, you’re mortgage won’t be approved unless you have extra cash to increase your down-payment. 

So an added risk is that the property won’t appraise for the amount you paid. 

But appraisals don’t happen until after the fact so most people don’t think of that. 

With a condition on financing an appraisal would happen during the conditional period. 

As for inspections, many people assume that a home is newer, appears to be well maintained, and there are no signs of neglect or problems, then all should be fine. 

I’m not going to make this post all about inspections, but I do encourage you to check out my video called:
“The [REAL] Purpose of a Home Inspection & What Home Inspectors Do”.

I’ll put a link below. 

But I will tell you I have a friend who just bought a beautiful home. 

When she looked at the home it was a showroom masterpiece with luxury finishes and state-of-the-art technology. 

What could be wrong? She had no choice but to remove condition on inspection because it was a multiple-offer situation. 

She’s been in the home for 3 months now, and still dealing with major issues. 

It seems much of the electrical work that was done for the automated control systems, and jacuzzis and things like that were not done to code. 

She’s now had to pay thousands to fix it and embarking on lawsuits against the previous seller. 

So to wrap things up, it’s never my intention to scare you, be negative, or talk you out of moving.

It’s always my intention to educate and inform, and ensure you make good decisions that will keep your family and your bank account safe.

With that in mind I’ll leave you with this question to ponder.

WHAT WOULD HAPPEN IF LISTINGS WERE PRICED AT FAIR MARKET VALUE INSTEAD OF BELOW FAIR MARKET VALUE?

Even priced at fair market value, if there are just two potential buyers looking for your type of property in your area, and you’re the only one for sale this week, you will likely get multiple offers. 

But then Buyers could do an inspection and ensure financing. 

By the way, as a Seller, most agents will tell you that a firm deal (meaning no condition on financing or inspection) is golden and much better than accepting an offer with conditions. 

Because you have a firm & binding deal and the Buyer(s) can’t back out of the deal during the conditional period. 

But what the better agents will also tell you is that even if you have a firm and binding deal, if they get you more for your property than the bank will appraise it for, and the Buyer’s can’t close the deal, you’re the one who’s up a creek without a paddle.

And if you want to know the difference between SOLD OVER ASKING vs. SOLD OVER FAIR MARKET VALUE make sure you check out my post called:
“Sold Over Asking or Sold Over Fair Market Value” because there is some really important stuff I cover in that post.

If you have questions about market pricing strategies, or you’re thinking of moving and have questions, I’m always happy to chat with you. 

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