Why would a seller ever list their home under market value? After all, market value is a reasonable rate that homebuyers would expect to pay. Wouldn’t you always list a home for as high as you could? Not necessarily. The reasons to list a home under market value are primarily about gaining a larger audience and shortening hold times. Specifically in the business of home flipping, cutting hold times is one of the fastest and most critical functions of increasing profitability.
There’s a range for market value.
Most homeowners are looking within a narrow range of prices they are approved for loans for. If you’re on the lower end of that range, you’re going to attract a larger audience of potential homebuyers.
Perception is everything.
If the potential buyers believe that a lot of offers are being made on your home, they may be inclined to make you an offer that is higher than the listing price. Listing a property $5,000 to $10,000 under your ARV will most of the time get you multiple offers and have a similar net to listing at the higher price.
Until a property sells, its listing price doesn’t constitute market value.
You may feel that your home is priced low, but unless you’ve gotten expert advice on pricing, it may not actually be low. If your home is priced below all the homes around you that are for sale, that might not necessarily mean that you are priced too low. Until those properties sell, they do not constitute market value. They may end up selling for much less than what they’re asking. If a neighbor’s house is priced too high, the price of homes around you is not a good benchmark.
Another time to list your investment property under market value is when you discover condition issues after purchase. If you dramatically underestimate the rehab budget or the condition of a property, it may be better to just list it at a low price, get out of that deal, and start looking for the next property to invest in. Condition issues that could be a major problem are problems with the roof, foundation, and mold.
Unexpected title issues can also present a problem where listing under market value is critical. Easements, HOA assessments, back taxes, and zoning can all create chaos on a fix and flip. Make sure you do your due diligence so you don’t get caught in a situation where you are just dumping the property.
Finally, consider the strength of the economy and demand. You don’t ever want to be chasing a declining market. If the market is going down, list under market value so you can pull your cash out to reinvest.
Bottom line. . . know the pricing and the market in your area as well as you can. And set what you believe is a reasonable price. If the home is in a desirable area, a home that is priced a little lower will be very attractive. You are able to create value and undercut competition.