Lowered prices create bidding wars in hot housing market
Real estate agents let eager buyers drive up demand
Three hundred people came through the open house, 25 made offers, and the bidding war lasted eight rounds and four days. By the time it was over, in early March, the owners of the 2½-bedroom, one-bath condo in Brookline — on a busy street, but tastefully decorated and near the Longwood Medical Area — accepted an offer that was tens of thousands of dollars above the $570,000 asking price.
Eric Glassoff, the listing broker, a man with 13 years of experience, said he could have listed the property at a higher price, “but then we wouldn’t have made as much money.”
It’s a scenario being repeated around Greater Boston, as some real estate agents employ a tactic that seems counterintuitive in a sellers’ market. Rather than setting prices high to take advantage of a market where buyers have few options because of low inventory, some agents in communities with hot markets are going in the other direction — listing properties for less than they expect to get in order to trigger even more interest.
The goal is to attract a mob to the open house and set off a frenzy where emotion trumps the cold math of price-per-square foot.
“You can get a ‘Hunger Games’- style fight,” said Cambridge real estate agent Lauren Holleran.
Boston agent David Bates , the author of “Context 2015,” a forthcoming e-book that analyzes the culture of “over asking price,” said that once multiple offers come in, “people are not bidding to buy the property for value, they are bidding to win. Those are two totally separate things. If you are buying for value, you are negotiating. If you are bidding to win, you do whatever it takes to get that property.”
With inventory tight, no one can blame a buyer for feeling desperate. In February, there were 14,068 single-family houses for sale and 3,780 condos statewide, according to the Massachusetts Association of Realtors. Those numbers are lower than any going back to 2004, when the group began compiling figures this way.
By comparison, the all-time highs came in 2006, when in September there were 38,617 single-family homes for sale, and 18,908 condos in June.
Holleran, a vice president with Hammond Real Estate, says that in the current market, setting the listing price too high is financially riskier than going low.
“In Cambridge or Somerville if you overprice it by more than 4 percent you might not even get a lower offer — the buyers glaze over,” she said. “The challenge is helping sellers understand that.”
Agents caution that the lower-listing price strategy only works in markets with strong demand, but even in hot towns, like Cambridge, some sellers find pricing their home for less than they think they can get nerve wracking.
Andrea Volpe, a writer in Cambridge selling an attached single-family home, was willing to take a risk. Her house had no parking and was clad in “crappy” aluminum siding. But it was also 2,500 square feet and gorgeous inside, she said.
The key was getting buyers in, so when Volpe’s agent presented three potential list prices — with a spread of $200,000 — Volpe took the middle option, and hoped the market would decide it was worth more.
It did. Ten people made offers — nine above asking. “Seeing so many people interested in it made other people feel comfortable putting in a big offer,” said the agent, Holleran.
The bidding-war strategy — sometimes called “restrained” or “realistic” pricing — is similar to practices in art marketing, where the starting price is just to get things rolling, said Timothy Warren, CEO of the real estate tracking firm the Warren Group.
“That’s another market where the auction is intended to bring a price that is not supported by comparable sales,” he said.
Despite reports of whopper bidding wars, some agents are critical of the approach.
“It’s less than forthright,” said Ruth Horowitz, a veteran agent in Newton and Brookline. Pricing a home below fair market value discourages “many serious buyers,” because they don’t want to participate in a “mad house,” she said, and “often causes anger in the brokerage community” because it puts brokers in the position of taking buyers to a house they might not be able to afford.
But the larger issue is, does it work? Realtors who employ the underpricing strategy like to rattle off homes that went for a figure far above the asking price.
In Somerville last year, a three-bedroom townhouse with views and an open floor plan listed at $1.195 million sold for $1.35 million, according to Multiple Listing Service records. A two-bedroom, 2½-bath Davis Square condo listed at $675,000 went for $791,000. In Cambridge, a mid-century, early modern house listed at $825,000 sold for $1,250,359. In Brookline, a 1,532-square-foot fixer-upper listed at $1 million sold for $1.49 million, according to MLS records.
As impressive as those sales may be, a few examples are not a statistical analysis.
What is known is this: A house faces the same unforgiving market forces as a debutante. It gets the most interest when it’s presented, and those that linger risk the taint of time.
A survey of the Boston condo market in 2014, for example, found that condos that went within the first seven days sold at 103 percent of their listing prices, and those that spent 121 days or longer on the market got only 97 percent of their list price — which might be lower than the original asking price, said Bates, the agent who did the research.
So what is the right list price for a home, anyway? David McCarthy, president of the Greater Boston Association of Realtors, says that question is getting harder to answer.
The problem is three-fold, he said. Low inventory means there are fewer recently sold houses to use as comparisons, or “comps’’ in real estate lingo.
In addition, when a home sells above list price, the final — and true — price is not made public until months later. That unknown sales price makes it harder for a real estate agent who is trying to use the property as a comp for one she is about to price.
Further, rising prices may mean that even comps from six months ago are not helpful. “It is a freaky market,” McCarthy said.
The median sales price of a single-family home in Massachusetts in February increased by 8.2 percent to $310,000 from $286,500 last year, according to the Warren Group, and the median condo price climbed 1.8 percent to $286,000 compared with $281,000 in the same month last year.
Meanwhile, packed open houses and bidding wars make sellers and agents happy, but they’re stressful for people on the other side of the offer sheet.
In Milton, Becky Padera and her husband lost out on so many houses over two years that helplessness set in.