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September 13, 2021

Smaller Buyer Pool? Stick With a List Price Closer To Value

San Francisco properties typically sell for more than their list prices. The strategy for our low-inventory market is expected, and buyers are used to the drill by now. List a home at ten percent or more under comp range, attract multiple offers and close with a sale price of well above list.

However, that outcome is not guaranteed—especially for properties with smaller buyer pools. These are homes that will attract more buyer objections than offers. If the property has one or more major objections, it’s a better strategy to price your home closer to the value.

There are many examples of the types of properties that will have smaller buyer pools. Here are a few:

TICs in 3+ unit buildings: Buyers need to be cool sharing title with multiple owners, which puts everyone at risk when it comes to property taxes and liens on the building. And fractional financing isn’t for everyone, as you can’t get a 30-year fixed loan. A quick look at TIC market activity over the past six months shows that the average overbid is five percent, with a handful of exceptions.

Tenant-occupied: Most first-time home buyers don’t want to take possession of a home that’s tenant occupied. So that knocks out a big demographic. And seasoned investors willing to manage tenants after escrow will be all about the numbers. Of the 85 tenant-occupied properties that have sold over the past six months, most sold at or slightly below asking. There are many variables for this property category, so it’s a sound idea to consult both your knowledgeable real estate agent and an attorney before you finalize a list price and estimated value.

Single-family homes that lack desirable amenities: Most buyers are looking for a house with amenities that are often unattainable in condos or apartments, such as a yard and parking. If you’re missing these two things—and are in a less central location, to boot—it’s best to keep that list price closer to value.

Less-than-desirable location: This covers everything from being on a heavily trafficked, noisy street, to being nowhere near public transportation or next to neglected home with a yard that resembles a junkyard.

Condo with a unique restriction: Some HOAs have very limiting pet restrictions that won’t work for a buyer with one or more dogs. Others have caps on the number of units allowed to be rented at one time. And litigation or known building defects will also negatively impact the buyer pool.

There are many other scenarios that will scare buyers away. I always find that it’s best to approach a sale of a compromised property with conservative expectations. The market will ultimately dictate the price, and you don’t want to be waiting months for that to happen.

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