Portland Area Real Estate Appraisal Discussion

Pricing Portland Homes Low for a Bidding War
April 22nd, 2015 1:09 PM

I teach classes to Portland, Oregon real estate agents about working with appraisers.  Last week during a class, an agent brought up an interesting discussion point.  She mentioned that some Portland area agents intentionally price properties low in an attempt to start a bidding war and subsequently sell the property for more than if it had been marketed for a longer period of time. 

I have heard of this pricing strategy as well, but studies that I have read lead me to believe that a longer market time will typically lead to exposure to more buyers and a greater likelihood that a higher sales price can be obtained.  In discussing this with the class, the consensus is that benefit from bidding would vary depending on the current market conditions.  I decided to gather some data and see if there is any evidence that a quick sale strategy actually results in a higher price in today’s Portland area market. 

To test this hypothesis, I chose Happy Valley, which is a suburban Portland, Oregon market with large samples of homes very similar in size, age, and quality.  I selected to study only sales occurring in the past two years of homes built from years 2000 and 2010, with between 5,000 and 14,999 square feet of land, and having from 2,500 to 3,500 square feet of living space.  During this time, Happy Valley inventory has remained quite low and steady between 2.7 months and 5.2 months, the median days on market have remained stable at under three months, and prices have steadily risen over the two-year period.  The following chart shows the price trend for Happy Valley properties selling in less than one month in relation to days on market (DOM).

Portland Appraisal Relationship Between DOM and Price Under 30 Days

The results indicate that properties selling within the first three days (an interval that suggests multiple offers or low price) do not tend to sell at significantly higher or lower prices than other properties selling in less than thirty days.  I expected that properties trading in the first three days would have sold for less than average.  The data suggest that the quick sale marketing strategy neither helps nor hurts the eventual sales price of properties in this sample. 

It would be interesting to obtain data on only properties that resulted in bidding wars.  Unfortunately, Portland’s RMLS does not have a search function based on the number of offers.  In sample above, I only identified two sales that sold for significantly more than the list price and in fewer than three days.  One sold for more than average and the other sold for less than average. 

Additional research would be interesting in a community with sufficient quantities of similar properties and more bidding wars, similar to those we are seeing in the older and more architecturally diverse neighborhoods close to Portland’s City Center.  However, this data is also interesting when properties taking up to 150 days to sell are included in the sample.

Portland Appraisal Relationship Between DOM and Price Under 150 Days

The above chart suggests that sales price could trend downward when the market time for a particular property in the sample extends beyond 30 days.  However, it is important to recognize that this is a small sample and the data could be skewed by properties with less attractive floor plans or other less desirable features (like busy roads), which typically result in longer sales times and lower sales.  More research is necessary.  Wouldn’t it be nice to have access to Fannie Mae’s CU data for this type of research?

Did I leave anything out or do you want to join in the conversation?  Let me know in the comments below.

On a side note, I was asked back on Portland’s Real Estate Today show on April 10th.  Here is the recording for those of you who missed it.  Listen while you work.

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Thanks for reading,

Gary F. Kristensen

I like what Jay Papasan of Keller Williams says about being in the market vs. on the market (there is definitely a difference). It's so important to be priced right. When you are priced right for the market, you will get offers. Bottom line. When you are priced too high, you probably won't. If you are priced too aggressively low, you may get way too many offers. The owner might look at the many offers and rejoice, but there may have been so many because the property was simply priced too low (whether on purpose or not). The real question becomes whether the property could really get bid up high enough to compete at a realistic price level. It's a gamble. Sometimes yes and other times no. It's interesting to see your research. This is a fun topic. Great conversation.

Posted by Ryan Lundquist on April 22nd, 2015 1:35 PM
www.SacramentoAppraisalBlog.com
Thank you Ryan for your insight. I agree that pricing too low is a big gamble and sometimes you might win. I have seen one example of a property that was listed too low and eventually sold for too much.

Posted by Gary Kristensen on April 22nd, 2015 1:39 PM
Great topic for this week's blog Gary. I've never heard of the "price it low for a bidding war" strategy. If I had only heard about the strategy, it would make sense to me and I could believe it however after seeing the numbers, the only real benefit I possibly see is quick bidding action and possibly a quicker sale. Glad to hear you're teaching real estate CE classes, the real estate professionals in the Portland, OR area are lucky to have such a knowledgeable, passionate, experienced local appraiser available to offer them reliable instruction. Keep up the great work!

Posted by Tim Packard on April 22nd, 2015 11:08 PM
adproworks.com
Thank you for the comment Tim. I'm surprised that they don't have the bidding war pricing strategy in your market. I really want to look more at other closer-in Portland neighborhoods to see if the results are different. The only problem is finding areas of close-in Portland that have similar homes for clean statistical samples.

Posted by Gary Kristensen on April 22nd, 2015 11:44 PM
I can certainly understand such a strategy if you do want to sell quickly, such as for a relocation, however if you are doing it to create an environment to get the price higher it may back fire. If you get the price at a higher point then a more traditional listing strategy then it is possible the deal may fall through if it doesn't appraise. I agree with you Gary about having more info. fields in the MLS sheets that might have this type of data to sort sales by. Great post and keep up the good work.

Posted by Tom Horn on April 24th, 2015 6:56 AM
www.BirminghamAppraisalBlog.com
Thank you Tom for the comment. You're right that it could backfire. I do want to do more research in a closer in Portland neighborhood. The closer in neighborhoods have more cash buyers and much more intense bidding wars, just the properties have so much variation that it is difficult to get a good statistical sample.

Posted by Gary Kristensen on April 24th, 2015 9:10 AM
This is a very interesting topic Gary. I guess the typical buyer is not fooled easily. Listing agents are trying to get the most money out of the property of course (that's their job), but the market will dictate the price, not the agent.

Posted by Lucas on April 29th, 2015 12:34 PM
Thank you for the comment Luke. That is a good way to look at it.

Posted by Gary Kristensen on April 29th, 2015 12:48 PM
This seemed to be a fairly common strategy among real estate agents in my market 2 years ago. However, it is much less common now. Not sure what accounts for the change - maybe the realization that the seller could get burned. I would suspect that this strategy tends to pays off more often when there is a low inventory of competing homes (under 3 months). But it's definitely a risky approach that only pans out under certain market conditions. Thanks Gary.

Posted by Paul on May 5th, 2015 12:11 PM
www.crawfordappraisalmn.com

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