A new pricing idea has been floating around cyberspace the last few days, one involving intentionally low pricing to spark a bidding war.

By Peter Ricci

Bidding wars are normally the ultimate sign of a hot real estate market, that demand for real estate is so stratospheric that prospective homebuyers are nearly falling over themselves with offers for the homes.

Sadly, bidding wars have been in short supply in the post-boom housing market, but the summer of 2012 has been a different story, with numerous media outlets (us included!) spotlighting the triumphant return of the bidding war – and now, some are even suggesting that there are methods to spark a bidding war!

Bidding Wars – The Empire Strikes Back

It almost seems like a big budget movie, doesn’t it? That after a long absence from the battlefield, bidding wars have come back in a major way! Here’s the notion behind the whole “sparking a bidding war” idea, which first sprang up in South Florida and was promptly picked up by Realtor Mag:

• To incite a bidding war, price the property low, as low as you possibly can.
• Even if the home has drawbacks, the low price will attract potential buyers.
• And if the price is indeed low enough, it will attract enough potential buyers that calls will start pouring in, and – once the buyers become aware of each other’s presence – a bidding war will ensue.
• The South Florida example is telling – though the West Palm Beach property had a leaky roof, the agent priced the home at the ridiculously low price of $37,600, prompting 70 potential buyers to tour the home and the final sale price to soar to $51,000, or 36 percent higher than the original asking price.

Price it Right – Strategically

So the whole bidding war idea, essentially, is an inversion of one of the cardinal rules of real estate – price it right. Though we’re often told that as long as a home is price correctly, it will sell, the bidding war concept suggests you deliberately price it incorrectly, and count on the resulting buyer interest to push the price up to that sweet spot – or, if the competition is intense enough, even beyond that point.

This has got to be one of the wildest ideas we’ve ever covered here at Chicago Agent. Are these people living in Xanadu, or could there be some truth to this approach?