I’m always fascinated by the drama of competitive listings between neighbors. For example, there’s a townhouse near me for sale for $950,000, and I wish them all the luck in the world because their neighbor just tossed their identical unit onto the market for $750,000. Do these neighbors hate each other? Is one of them just oblivious? It’s also possible that one of them is in a financially desperate situation, which of course would be sad… I may never know.
My complete lack of knowledge, however, will never stop me from speculating. It’s difficult to imagine that the neighbor who listed their unit for $200,000 less had no idea what they were doing. Why would anyone buy the $950,000 unit when they could get the same exact thing for $750,000? Anyone who has ever lived in an HOA can imagine the bitter resentments that perhaps led up to this. That said, when I investigated this further, it appears that the cheaper unit is in line with real market pricing. Many comparable properties recently sold within that $750,000 price range, and the county’s real market value for both properties is around $700,000. It appears that the unit priced at almost one million is way, way over market. The owner of this overpriced home must be absolutely livid that their neighbor just undercut them by $200,000.
This little HOA drama made me think about how irrational pricing can deeply affect a buyer’s (or seller’s) perceived value of a neighborhood. For example, someone who is actually interested in one of the townhouses I just described may do the research to discover which of the identical townhomes was priced irrationally. However, someone who is not interested in these townhomes, but is considering a nearby property, will likely be influenced by the list price of the $950,000 townhome. This list price may anchor a buyer’s perceived value of the neighborhood much higher, without the buyer realizing it. If you’re looking for properties, the fact that a property nearby is currently listed for almost a million will likely change how you view the general pricing of the neighborhood, and will likely influence how much you offer.
All buyers subconsciously do a quick, casual comparative market analysis of nearby properties, but if these aren’t the types of properties they’re going to purchase, they won’t do much research. This is why homes that are priced very low hoping to start a bidding war can be infuriating to neighbors trying to sell their properties, since these bidding war “traps” anchor the perceived value of the neighborhood much lower. If you’re considering a house listed for $600,000 and there are two similar nearby properties listed for around $400,000 to ignite bidding wars, the $600,000 house is going to seem way overpriced, even if it’s not.
I would argue that these pretend prices affect buyers and sellers far more than they used to, since consumers have far more access to detailed property info than they did 30 years ago. Before contacting an agent, it’s very common for a buyer to already have a property in mind, and already have an idea of what they want to offer. However, consumers don’t always have a balanced perspective on the information they are seeing online. For example, there is a co-op building in my neighborhood that I can almost guarantee negatively affects the perceived value of all the condominiums around it. This is because co-ops are very different from condominiums, though they seem superficially similar. In a co-op, you don’t own real property; you own shares in a company that owns the real property that you live in. For a variety of complex reasons, it is usually very cheap to purchase a co-op, but you’ll often pay over $3,000 per month in fees. Thus, co-ops seem very inexpensive at first glance, until you understand exactly how much you’ll be paying monthly. This means that untrained buyers may see co-op units for sale for 50% less than similar condos, and then just skip over the condos because the pricing seems way too high comparatively.
As an agent, it’s important to address these subconscious value misperceptions head-on so that you and your clients can get on the same page. Of course, market value is fundamentally whatever a buyer is willing to pay and a seller is willing to accept, so it’s highly subjective… but there’s also a certain relative objectivity to real estate pricing as well. In my mind, the only real estate pricing that is objectively wrong is pricing that is uninformed. That is, if you want to offer $200,000 more than you need in order to get a $950,000 townhouse, but you’re making that offer because you understand the market and you just really, desperately want that townhouse, then at least you’re aware of what you’re doing. But if you’re offering $950,000 because you don’t understand the larger market picture, then offering that amount would be “wrong” in my book. It’s not the pricing per se that is right or wrong; it’s whether your client is going into a contract with clarity and a well-informed market perspective.
Unreasonable Pricing
