If you haven’t heard, Hamilton’s Real Estate market is on FIRE! There is a strategy of under pricing properties to create an even more frantic bidding war. What are the pitfalls of under-pricing your property in a market like Hamilton is experiencing now?
Properties are selling for over asking price even if they are priced “bang on” or at least what we perceive to be “bang on”. So if the property is under-priced as well, there is a strong possibility that the difference between asking and selling price will be quite large. At what point does this trigger red flags and an appraisal from the lender or the insurer? That is the million dollar question. It depends on the location and the perceived risk that the area poses to the lender or insurer. I’m sure there is a formula so that when the details are input into the lender’s system, it can either go through without a hitch or trigger that appraisal.
So what if an appraisal is called and the property does not appraise at the value it sold for? If there is a condition on financing the buyer could walk away from the transaction. In this case at least you would know within the time allowed for that condition. Usually 3-7 days. What if the buyer came in without a finance condition because they were in competition and “really wanted the house”? Here is where is gets tricky. The Buyer needs to understand that if the property does not appraise at the sold value, they will have to come up with their down-payment as well as bridge the difference between the appraised price and the sold price. This can be quite significant.
There may be a temptation to accept offers without a financing condition but I would want to be assured that the Buyer is of course pre-qualified, can come up with extra cash if there is a shortfall with the appraisal and has been advised that this is a possibility. Some times it is better to deal with a short finance condition and make sure you know what to expect as opposed to getting a surprise down the road when you find out the Buyers have been unable to procure financing. Make sure you and/or your agent ask the questions that need to be answered to protect you.
In my opinion, do not under-price your property to create a crazy bidding war. Price it right, with a good chance of still creating that bidding war. Without sending up RED FLAGS to the lender because you have a sale price that is way higher than the asking price.
If you have any questions about this or want other Real Estate and Hamilton area information, contact me at 905-574-4600 or email kathydellanebbia@royallepage.ca
Expect More, Get More!