Definition
Underpricing is setting list price below market value to attract multiple offers. It can work to create bidding wars, but it leaves profit on the table. Strategic underpricing requires confidence in underlying property quality.
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Find my pathAbout this term
Underpricing is a strategic approach sometimes used to attract multiple buyers and competitive offers, particularly in slower markets or when the seller needs to sell quickly. A price slightly below market value can stimulate buyer demand and create bidding wars. However, underpricing by large amounts results in significant foregone profit. The strategy works best when the property has strong fundamentals and market demand.
Pro Tip
Underpricing can work in strong markets, but only price significantly below market if you need quick sale.
Example
Comparable homes in a neighborhood sold for $420,000-$435,000. A seller prices their home at $395,000 to generate urgency. The strategy works—they receive five offers ranging from $410,000 to $425,000 and sell for $420,000 after competitive bidding.