A price mirage happens when the list price of a home for sale is far below what the sale price will be. Right now this is a very common strategy from listing agents and sellers, and buyers need to know about it.
Those homes are not really available to many of the home buyers who are excited about them and think that it will sell at or only 10% or so above list price. The gap is much higher than that, particularly if a property sells in the first two weeks.
What is a price mirage?
Sometimes the listing agent and sellers very intentionally deeply underprice a property by 25% or more (to see how far the market will bid it up). I can think of a few local Realtors who are well aware that most of the buyers they attract with artificially low prices cannot truly afford their listings. But those buyers will crowd the open house and make offers which are low (a waste of many people’s time).
The articles about homes selling for $1 million or more over list price are becoming more common. Recently we were working on an offer along those lines, but the house sold for far more than that, about 49% over list price. It’s staggering.
Often the home is priced a a little low, but so many buyers pounce that the price gets driven up and out of reach, and that can surprise everyone. In these cases, let’s say a house looks like it should be worth $1,035,000, but the home goes on the market at $1 mil even, but buyers are so desperate that it gets many offers and sells for a little over $1.1 mil. That is common and has been for years. That’s not a price mirage because the list price wasn’t tremendously less than what appeared to be the probable sale price.
What we are seeing now is along the same lines, but with lower list prices and higher sale prices. Buyers cannot look at the list price and know if they can afford the property or not. They wonder if it’s underpriced by 10%, 30%, or even 50%?
What should home buyers do about cheap looking homes that might be a price mirage?
When you are shopping, please be aware that sometimes the house may be listed just below a price point (such as $1 million, with a list price of $998,000) even when the home is clearly worth much more (such as the $1 mil house being worth $1.3 mil). I frequently see homes placed at or a little under major price points such as $1 or $2 million, even if the property is worth a couple of hundred thousand – or more – higher than that. So first, pay attention to price breaks!
Secondly, have your buyer’s agent help you with the comparable sold properties and market activity to determine the probable buyer’s value. This is one place where you really want your own agent in your corner (rather than just working with whoever the listing agent happens to be).
This is enough if you are just thinking about a home or wondering if you can actually afford it (since the list price is close to meaningless in many cases). However, if you want to actually write an offer on a home, that will require a deeper dive on pricing. In those cases, buyer agents may want to reach out to the listing agents of similar pending homes and see if they can learn anything about the number of offers and especially the price for which it is under contract.
- Some listing agents will never share this info with anyone, ever, until the escrow closes. (Not helpful in spotting a price mirage!)
- If the sale just happened, few details will be shared, and none before the buyer’s deposit gets to title.
- Even if it’s not a brand new pending, some listing agents may say something vague and not super helpful, like “we got a lot of offers and it went way over list price”.
- Many will share “we got 10 offers and it sold over $X” (often citing the amount if they got several bids higher than that).
- If it’s near the end of the escrow, listing agents may be more comfortable sharing the number of offers and the exact sale price.
- A few agents will be super helpful: “We got 24 offers, most of the bids were around $X, but we had 4 offers at $Y and it sold with Z type of financing and it did appraise at the sale price”
.Often, the ultimate sale price (and terms) will be influenced in large part by the number of offers presented, but with such a small inventory, that’s not always the case, particularly if it sold before an offer due date. Your buyer’s agent can assist you in trying to decipher that type of info so you can get a better idea of the likely competition.
Some listing agents are suggesting list prices not where the recent comps sold, but just a little above where the recent comps were offered for sale. That won’t really help the buyers to know the ultimate sale price, but it does point to how they got their list price.
It is frustrating, it’s a tease, and it’s a mirage. It is not the likely sales price – it’s a lost leader or a teaser to get you in the door.
It’s best to remember that old adage: “if it looks too good to be true, it probably is”. That is precisely what happens with a price mirage.
Related reading on pricing
Pricing articles on popehandy.com:
Selling your home in an up or down market (pricing is key)
What’s my home worth? (Not info, but an opportunity for home owners to request an online valuation.)