[Music]
Hello everyone and Welcome to another
episode of Selling Greenville your
favorite real estate podcast here in
Greenville, South Carolina I am your host
as always Stan McCune realtor right here in
the Greenville area of South Carolina
and you can find all of my contact
information in the show notes or the
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all right I appreciateyou guys
havinglistened for for all of these
years I have some some listeners who
have been with me from from day one it's
beennow what almostI don't even
know two and a half years that I've been
doing this podcast it's been it's been
quite the rideand right now I want
to kind of revisit a topic that I add
addressed a year and a half ago and that
was the topic of underpricing a listing
nowwhen I say underpricing I mean
you price a listing below what it's
worth potentially to drive up the price
in a bidding war type of situation now I
heard someone say recently you cannot
underprice in this market that it was
another real estate Prof professional he
said you cannot underprice a house in
this market and I thought that was a
very interesting thing to say
his point was that as the market shifts
and and as I've been saying on this
podcast for now several months the
market is Shiftingso as the market
shifts you need to be extremely careful
not to overprice a home that you're
selling and if you've been listening to
this podcast now for a whileyou know
that before I did a year and a half ago
thatpodcast on underpricing a
listing I did one on overpricing it what
happens when you overprice a house when
you end uplisting it for more than
it's worth and then end up selling it
for less and I and I came to the
conclusion based on the data that I
looked at that homes that start out
overpriced end up selling on average $12
per square foot less than homes that
were priced correctly or underpriced and
so thatwas a a huge that was
something that kind of verified what I
already had in my mindI already knew
you know everyone always says
overpricing a home over pricing a
listing is the worst possible thing you
as a realtor can do it just causes more
time it ends up not working out for the
seller in the end but I I never actually
knew until I did thatanalysis just
how destructive it is $12 a square foot
is a big deal you don't you don't want
to lose out on $12 a square foot on a
2,000t house that's
$24,000 that's a very very big deal
so so that was verifying of course that
you don't want to overprice a listing
and then I followed that up with
analysis on underpriced listings and at
the time now again this is in March
2021I concluded that underpriced
listings sold for basically the same
price as properly priced listings
technically they were slightly more they
sold for slightly more on average but it
was so close it was like a dollar or a
dollar and a half something like that
more it was just so close it felt like
it should be within the margin of error
and I'm not a
statisticianso I I don't even really
know how to calculate a margin of error
but just generally speaking a dollar and
a half a square foot that's to me not
statistically relevantandand so
I thought in general and and I said this
on the podcast that it was better to
price a property for roughly what it's
worth rather than taking the risk of
trying to drive up the price by under
listing and then creating a bidding war
well I relistened to this podcast
recently because I was curious how it
aged and I I wasn't necessarily way off
the mark but I I have to sayout of
all of my podcasts this one is probably
one that aged the worst if you want to
go back and listenand compare it to
this one feel free to it was back in
March of2021 if if I remember
correctlyin that podcast this is the
part the age the worstI said that I
anticipated the market slowing down in
the near future and that under pricing
wouldn't be the best practicenow In
fairness nobody had any idea that this
was going to happen but it did the
market went bananas after that like we
thought inin the first quarter and
early second quarter of 2021 that that
the market had already peaked no no no
that was the the time that it started
going absolutely crazy we we had no idea
I remember talking to someone later that
that said that exact thing he was
like you know I mean we thought 6 months
ago that we were at the peak we had no
idea what was happening I I had no idea
in March of 2021 that the market was
going to absolutely just blow up in
Insanity tons of more Supplybut
being outpaced dramatically by the
demand and that inventory levels would
go down into the ones I mean it was
there was just no way to predict that
that would Happ the inventory would
start to go into the ones that
year-on-year price increases would start
to get into the 20% range all these
things that have have been causing the
marketor that had been the result of
the market beingbeing insane that
all happened after I recorded that
podcast and it you know it was really
hard to to predict that that was going
to happen nobodythat I was following
or you know none of my sources and I
have a lot of sources I do tons of
research on the real estate Market both
in Greenville both Nationwidenobody
that I follow that has a really good
track record of of predicting things
predicted that that would happen but it
didand so it's it was kind of
laughable when I went back and relisten
to that podcast I was like oops I put it
all out there though I'm willing to take
my lumps I was wrong the the market
didn't slow down on the near future in
the immediate future it got crazier
now we know that it is going down a
little bit nowbut again as inthe
my most recent podcast about the market
stats that came out with the greater
Greenville Association of Realtors even
though there are indicators that slowing
down there are other indicators that's
still very hotand so we we have to
take all of these things you have to put
the whole puzzle together because
there's all sorts of different pieces
and not all the pieces Interlock in the
way that you would expect them toso
back in March 2021basically a year
and a half ago I said that I didn't
think underpricing would would be a
smart practice that that sellers would
potentially leave money on the table if
they underpriced a homebut I also
said that if you're going to underprice
a home probably the best practice is to
underprice by a lot not underprice by5
or $10,000 underprice buy a lotand I
think that I got that part rightnow
in this episode I'm not really planning
to get into the analysis of all of that
I didn't back then that's more of a gut
feeling than anythingbut I I stand
by that I think I was right in
that in that assumption that I made was
that if you're going to underprice you
need to underprice by a lot not just byy
a littlewell since that timeit's
become more standard practice so in the
past year and a half it has become more
standard practice than ever to
underprice a listing andfrom what
I've seen
anecdotally it hasn't hurt any of the
listings and in some cases it has
appeared to help now that's just
anecdotal we're going to look at the
data and see that there there may
actually be some instances in which it
has hurtand and that's that's
logical as I as I've already said you
and and as I said in that episode
sometimes people will get fixated on the
on the price on the list price and they
they can end up not drivinga home up
as high as it should bebut that
being said it has become more standard
practice than ever the past year and a
half for listings to be underpriced in
an effort to create a bidding warand
and I have seen real instances in which
a home has sold for more
than I believe it should have that
started off under pric an example in my
own neighborhood was a house that listed
a very small houseon a very busy
street that listed for
$175,000now even with it being small
and on a busy street I thought this home
should at least this home should be
worth in roughly the the 215 to
$220,000 range that was Lo logically
what it should go for it ended up
selling for2
37,000 so it ended up selling for what
$52,000 more than what it was listed for
that just completely blew my mind and I
believe that it sold for more than it
would have had they listed it for 220
now if they had listed it for 220 it
might have gotten it might have still
gotten bit up a little bit but do I
think it would have gotten bit up to 237
probably not what happens when you
underprice the homes you get more bodies
in the home you get more people looking
at the home and then there might be
people that at the 220 price point would
have saidforget it there there's a
gazillion of these homes this size that
are that are 220 I'm I'm not even going
to look at it but instead at 175 you get
all these people that are like well I
know it's worth more than this I know
it's going to sell for more than this
but let's go ahead and and take a look
at it and and put our best foot forward
and maybe someone looks at it that
wouldn't have looked at it at 220 and
they just fall in love with it and they
say you know what I'm willing to go up
to 237 this is exactly what I'm looking
forand so you do have that Dynamic
that happens and again this is kind of
why I think that it's better to if
you're going to underprice a home
underprice it by A Lot 25 30,000
something like that don't underprice by
five or $10,000 that's not you're going
to have if you underprice by five or
$10,000 generally speaking the Market's
going to look at it and
say okay it's pretty close to what it's
worth and you're just going to get those
full price offers you're not as likely
to get the bidding war to come into play
at that pointnow again not every
time doesn't make sense to underprice a
home and I'm going to before I get into
the data I just want to make this clear
this is not a one-size fits-all formula
I know somelisting agents and some
listing teams and companies that it
seems like they make this just a general
strategy that they always want to
underprice and try to create a bidding
warI personally don't think that
that is the way to go I think that there
are two times at least there might be
more but two off the top of my head that
make the most sense for underpricing a
listing the one is if a property is
really hard to determine the value so
you it's just it's we're not sure what
the exact value of the home is there's a
huge range usually when I'm when I'm
pricing a home I try toI try to come
up with kind of a narrow range of what a
home might be worth hopefully the seller
is on board with that and we can both
move forward with thatwhen it's hard
to determine the value then at that
point it makes sense to so for instance
if that range is like a 30 or $40,000
range then at that point it makes sense
to go with the lower with with a a much
lower price right and let the market
decide at the end of the day what a home
is worthso homes that are difficult
to determine the value usually it's
pretty straightforward to determine
value of a home at least from my
perspective you know I've been doing
this for so long it doesn't usually take
me that longbut still there are some
unique examples where it can be
difficult to determine the valueone
is if a property is a fixer upper that's
an examplein which okay it makes you
know it makes logical sense that it'll
be hard to determine what this house is
worth because it needs so much work to
be done on it fixer operators can be
hard to Valueunless there are a lot
of other fixer uppers in the area that
have sold recently usually there there
haven't beenin a lot of instances
another examplewould be a home that
has unique features that you can't
really find comparables for and by
unique features that can be anything it
has you know an apartment over the
garage or maybe it maybe it lacks a
garage I II flipped a house a couple
of years ago that it was the only house
in the neighborhood that didn't have a
garage and that post some challenges for
pricing the house it was like okay
what's the market going to say everyone
in this neighborhood has a garage except
for whoever is going to end up living in
hereso that can be an example
some a house that has unique features or
lacks the features that conform to the
neighborhoodor perhaps we're just
talking about a neighborhood that is
generally hard to comp foryou know
an example might be let's say that you
have a homethat's near downtown
Greenville or is in you know like
Overbrook or G Estates or Parkin Mill
some of these areas that that can have
some very expensive homes but maybe this
home doesn't conform to the other homes
in that neighborhood it's just smaller
or or perhaps a lot bigger or you
know is one that doesn't have a garage
when every when all the others do as I
kind of already gave an example of just
in a neighborhood that doesn't have the
standard cookie cutter types of homes
and this one that we're trying to comp
is dramatically different than the other
ones that's an example where it can be
hard to determine a valueso anytime
a property is hard to determine the
value of it could make sense to go the
route of underpricing again I'm not
going to say it always makes sense to do
that but it could the secondexample
of when it could make sense to
underprice a house is if you're trying
to bring investor buyers into the
equation if you want to see investor
buyers if you want to get investor
buyers into the house you need to price
a home at a price point that will
actually attract investor buyers that's
that's logical but you'd be surprised
how many people do not comprehend that
they just think investor buyers are are
out there slinging money around buying
everything no investor buyers want to
get something that is a good deal in one
way or another the only way to get them
into a property is to lure them in with
a lower price and then once you do that
you might get some investor buyers that
originally they they wouldn't give
market value but perhaps like I said
they fall in love with the house they
see potential they they have this idea
or that idea and they might be willing
to actually go above what the rest of
the market is willing to do investor
buyers you know particularly the ones
that are just sitting on a lot of cash
they can be very aggressive they don't
want their cash to be sitting in a bank
just losing value and I have seen
multiple examples over the years but
specifically the past two years of
investor buyers being willing to go
above everyone else because they are
just desperate they want to make sure
that they Park their cash in a real
estate asset asset recently investor
buyers you know wanting to make sure
that they get in before mortgage rates
keep going up and sothat can be a a
very crucial strategy to make sure that
you get those investor buyersinto
into a house and sothose are the two
instances in which which I think it can
make the most sense to underprice just
from my personal experience there's no
data behind any of that that's just from
my personal experience and and just what
I have seen over the six and a half
years I've been in real estatebut
all of this is here say I do you guys
know if you listen to this podcast often
I like to look at data I don't just like
to give my opinionI like to look at
the data first and then give my opinion
I want my opinion to be based on
something concrete and so I did a very
similar analysis that I did 1 and A2
years ago when I looked at underpriced
homes I I basically redid that entire
study again except looking at home sales
the past six months so I pulled all
sales in Greenville MLS for homes or
town homes from the past 6 months and
then like last time I only kept homes if
they were in a subdivision that had at
least four sales why a subdivision well
those are going to be homes that have
that are the most comparable if you just
get you know a random home out in Pickin
Countythat doesn't have any you know
homes very close to itall the homes
around it are custom you have a mobile
home next door then you have a
million-dollar home across from that and
then a $300,000 home next to that those
are not comparable homes we don't want
to those to skew our data set and then
making sure that that the each
subdivision had at least four sales
that's just because if you if you don't
have a a decent at least somewhat decent
sample size that can skew your data as
well if you've got you know again just
two homes that have sold one of them
appeared to be underpriced and the other
one wasn't that's that's not much of a
sample size four homes I know from my
experience when I'm trying toto
determine the value of a home I like to
see at least four comps that is real
three I can I can work with three three
to four comps really gives me the the
data sample I need to determine the
value of a home if I have if I only have
one or two that doesn't help me at all
I shouldn't say it doesn't help me at
all but it it it it's a lot more
guesswork at that point so I like the
number four andand that's what we
worked with last time and that's what we
worked with again this time when I
was looking at this
dataas far as how I defined an
underpriced home this is a bit arbitrary
a bit subjectivebut I I like to
Define for the purpose purposes of this
study both before and now a home that
has sold for $115,000 or more above what
it was listed for in my experience
that's typically a bit of a dividing
line between homes that were priced
relatively close to what they were worth
versus homes that were truly underpriced
once we start to see people offering
greater than
$115,000 above what a home is listed for
then that's a home that that was
underpriced if people are offering 5
10,000 12 ,000 above what it was listed
for to methat's just a home that it
wasn't underpriced it's just had it's
just very desirable for whatever reason
and had multiple offers that came in and
that just drove the price up so I took
homes that had sold for $115,000 and
more above what they were listed for in
subdivisions that had at least four
sales the past 6 months and compared
them to the other homes within their
subdivisions and what was the end result
the end result was that home homes that
were underpriced okay they sold for
$115,000 above what they were listed for
they sold on average for
$763 per square foot more than homes
that were not underpriced by this
definition that I that I've givenif
you want to look at the median because
the median is obviously an important
number to to tell us whether that
average is accuratethe median was a
little bit lower but it was still
substantial it was $4.70
above what the average in the
neighborhoodsold for so both the the
average or the mean and the median were
substantially above what homes sold for
if they were underpriced so the
underpriced homes to say it another way
there they sold for more and and it was
a substantial amountI and I and I
think you know unlike last time where it
was just like in the $1 range I think
we're looking at these numbers 7 $763
$4.7 70I I think that these are
numbers we need to take very seriously
and this needs to influence how we
approach this underpricing a listing
discussion and now this is a very unique
Market as I've said before we need to
tailor our strategies to the market that
we're in and that being said I think
that underpricing honestly is more
viable now than it has ever been because
of of how much we're seeing the market
shift because not only do we have these
Dynamics potentially in place where
there might be a home where it's hard to
determine the value of or there might be
a home that you want to get invest your
clients in but also we have this dynamic
in place where the market is changing
and we don't exactly know what's going
to happen we just know that demand is
not what it was a few months ago and so
demand is falling that's going to impact
home values underpricing a home it might
feel scary underpricing your home when
you're selling it might feel scary but
at the same time it may make the most
sense in order to get in front of the
shifting Market it may be the safest way
to go let the market decide let the
market decide what your home is worth
don't try to to to guess wrong and then
overprice the home and then lose $12 a
square foot that's a big dealat
$4.70 per square foot so let's just go
with the medium
the underpriced home sold in the median
numberfor $4.70 per square foot
above the the average above the normal
for the
neighborhoodthat's that's
substantial on a 2,000t house that's an
extra
$9,400 that a seller makes so you don't
want to lose
$9,400 nobody does I don't care how much
money you have nobody wants to lose that
money you know if you're very very
wealthy that's at the very least a very
very nice meal rightand I mean in in
Greenville that would be multiple very
very nice meals we don't have any
restaurantin Greenville where you
can unless you have a massive group
get one meal that's going to cost over
$9,000but I I I know that there are
some places in the world that that do
cost that solong story short you
don't want to leave money on the table
and so we need to keep this as a tool in
our toolbox the possibility to start a
listing with a lower price with a
substantially lower price than what we
think it might be worth but again I'm
not saying to always do this I'm saying
keep that as a tool in our toolbx
because remember each house and each
situation is different the quote that I
that I started this episode with the
quote that you cannot underprice a house
in this market I kind of disagree with
that okay and here's why I disagree with
itthe sample set that I used that I
already describedended up having the
data for 657 houses that was ultimately
my sample set was 657 houses and of
those
657 269 of them just a a hair over 40%
actually sold for less than the average
in their subdivision so even though the
average across the entire sample set and
the median across the entire sample set
was greater
thanfor underpriced homes than for
those that weren't underpriced still 40%
of that sample set still had the
underpriced home selling for less than
the average in those neighborhoods and
so you could make the argument that 40%
of the time just based on this sample
set at least 40% of the time in that
sample set underpricing didn't work and
perhaps 40% of the time moving forward
it won't worklike I said I feel like
it makes the most sense for homes that
are more more difficult than normal to
determine the value of or of homes where
you want to involve investor buyers for
whatever reason but that strategy
differs based on the type of home that
you're selling the area that it's in
what the market on a meta level is doing
there there are a gazillion things to
consider and and it's not you cannot
take a one-size fits-all approach for
thisso I want to make that clear you
guys if you're thinking about selling a
home soon it might make sense to price
might make sense totry to determine
exactly what the home is worth and to go
with that
number the only thing it doesn't make
sense is that it doesn't make sense to
do is to overprice do not overprice your
home I'm promising you I will tell you
it doesn't work you will end up
regretting it it'll take longer to sell
it'll sell for less moneyit'll be
stressful for everyone don't do it it
it's not going to work out in the long
run and I will saythe past one and a
half years it has been the best Market
ever to overprice a home in because you
there were situations where people would
overprice a home and then drop the price
and then get multiple offers after they
dro the price that Dynamic is is
basically done we have completely seen
that disappear that that possibility
that you could overprice a home and then
have it sit on the market for a while
and then lower the price and then get an
influx of activitywe're not seeing
that happen anymore and it that's the
shifting Market that we're seeing it's
directly impacting certain properties
and certain situations and that's one of
the ones that's been impacted the most
so make sure that you talk to a real
estate professional which by the way I
am one of them so again my contact
information is in the show notesif
you need to talk to a real estate
professional about selling your house I
do that I represent buyers and I
represent sellers so please keep me in
mindand as well thank than you guys
for listening to the show for all your
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and we will talk again next time
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