It’s happened again – I did a post Friday about the week’s overbids, and the comments and emails immediately come in, “Is this because the owners are listing for under market prices to crest bidding wars?” or “Why do you always highlight overbids? Aren’t these properties underpriced to begin with?” or “These properties are selling at market price, so why all the hype about overbids?” or “Can you post comps for each overbid you show?”

It’s nonstop, so let me elaborate. The answer is no, most of these overbids are not underpriced, and no, most listings are not intentionally underpriced*. Most properties are “competitively” priced. In a market where buyer activity drives property values up, we have learned (this isn’t San Francisco’s first crazy real estate rodeo) it is best to price a property lower than where you expect it will sell, get a lot of people through the door, and let the buyers set the new market price for any particular property. It is the best way to get the highest price for the seller. The truth is, in this market, we listing agents have run out of crystal balls and simply don’t know what true market value of a property is until you open it up to the hordes of buyers out there, and let them do their thing.

Additionally, buyers have become accustomed to looking at property priced lower than what they expect to pay in the end. So if you list higher than what they’re searching, you won’t get them through the door. For example, a buyer that is expecting to pay $1.2M on a property is likely looking at properties priced well below that (in the $800-995,000 range), knowing they have to bid over. It’s mean, and totally wrong, but it is the way it is. If you bring a property to market at the higher price you hope to achieve, you might get less buyers through the door, no offers in the end, and end up “chasing the market down”, which is not a fun thing.

The last three listings I had blew our (mine and my clients’) minds. We had expectations as to where they might sell, and even entertained the idea of an off market sale, but man were we glad we didn’t go that route. In each situation we received at least 10% more than what we originally thought was “market value”. Did we intentionally price it low? No. We really didn’t know exactly where it would end up selling, so we priced it competitively knowing the buyers will set the market price, and they did, and always do.

It’s frustrating being a buyer in this market, no doubt, but it’s stressful being a seller too. Selling a property for an exorbitant amount of money, regardless of how much over asking an offer might be, is not entirely relaxing. Appraisers strike the fear of God in sellers, because each new appraisal is at a level not yet seen. Hence the draw of accepting cash offers over those with loans. Miraculously appraisals keep coming in at value, but sometimes other things can derail the process too, and then what? Re-list? List at higher price? Are the same buyers still out there? Will you get that magical (through the roof) number again? Do you put the backup offer in (if they’re still there)? So many variables cause so much stress, but that’s another topic altogether.

The bottom line is the overbids that are highlighted here and make headlines are not so much about property being underpriced, as much as they are about the multitude of buyers out there willing to go to astronomical heights to realize their dream of owning property in San Francisco. Arm chair analytics are great for SocketSite, not so great for listing your home on the market, or trying to be the lucky buyer that wins in a market with far too little supply, and over-flowing demand.

So take these overbids with a grain of salt, and if MLS was smart, they’d add a category when reporting sales that will show us all the number of offers on any given property and any given overbid. That’s the real stat to focus on. For every property that gets sold there are usually 10-15 buyers (at least) that just lost and are moving on to the next one, and ready to go crazy big just to be done with it.

I hope that sheds a little light on the matter, and I hope it clears up the air around most of us real estate agents that are simply doing what it takes to get the seller the highest and best price for their property. It’s a bit of a game, but if you know how to play, you can win. As always, I’m here to help you buy and sell, because I do know the game, and I do know how to win.

*Some agents do intentionally underprice property, and some agents do use this as a way to brag about getting “$$$ over asking on my latest listing, I can do the same for you.” But those agents are the exception, not the rule, and you should avoid them.

–Last Week’s Top 10 Real Estate Overbids-San Francisco [theFrontSteps]