Selling a Home? The Market May Be Cooling off, but Here's Why Pricing Too Low Could Backfire

Buyers might balk if your listing price seems too good to be true.

Home prices have been soaring since the latter part of 2020. And not shockingly, many buyers have struggled to find an affordable place to purchase.

But while buyer demand is still strong, we may finally be moving past that stage of the housing market where sellers can get away with outrageous prices. Between higher mortgage rates and a less extreme lack of inventory, home prices have gradually been coming down (though to be clear, they're still higher than usual).

If you're looking to sell your home quickly, you may be wondering if underpricing it is a good strategy. Doing so could draw in more buyers, and also, lead to a bidding war that ultimately drives your sale price up.

But while pricing your home on the low side might seem like a good idea, it could also backfire. Here's why.

You don't want to turn buyers off

At a time when homes are largely still overpriced, a home that's underpriced might seem too good to be true. And that alone could drive buyers away instead of drawing them in.

Let's say you list your 2,000-square foot home for $369,000 when most comparable homes in your area are being listed for $399,000. Buyers might look at your listing and wonder what's wrong with your home that you'd ask so much less for it. Now in reality, there may be nothing wrong with your home at all. But a lower price could still send that message.

Also, you might think that if you price your home $30,000 under market, that it will result in a stream of interested buyers who duke it out over your property, ultimately driving its purchase price upward. But that's not guaranteed to happen. Buyers these days have to be careful with borrowing because mortgages have gotten more expensive. And so they may only be willing to go so much over asking price to snag a property to buy.

A good approach to pricing your home

Underpricing your home might seem like a good strategy, but it could make it difficult to find a buyer. And it could also result in you getting less money than you'd like.

That's why it's a good idea to engage a real estate agent to help you price your home. An agent with a solid pulse on the local market can help you determine what price to ask for given factors like the state of your home and buyer demand in the area.

If you really don't want to hire a real estate agent because you don't want to lose 5% or 6% of your home's sale price to a commission, your next best bet may be to simply look at comparable homes in the neighborhood and try to price yours somewhat similarly. Or, you may want to underprice yours slightly, but not to a big extreme.

If most 2,000-square-foot homes in town are listed for $399,000, you can try putting yours up for $394,000 and see if that attracts buyers. But think twice before you underprice your home by tens of thousands of dollars.