The primary goal of anyone selling their home is to get maximum capital gains from the sale. Therefore, pricing your house below market value can sound counterproductive. However, there are certain situations where it is a viable option to explore.
So, yes. You can choose to sell your house below market value for various reasons such as wanting to speed up the sale in a slow market, selling to family and friends, or simply trying to get the property off your hands as fast as possible.
This article covers everything you should know about selling your house below market value.
What Is Selling Below Market Value?
Selling below market value refers to a situation where the asking price you set for your home is lower than what potential buyers would be willing to pay on average. It basically involves ignoring the appraised value and setting a price that would appear to be a bargain to most potential buyers.
Why Price Your Home Below Market Value?
There are various reasons why people choose to price their home below market value, and here are the more common ones:
Looking for a Quick Sale
Pricing low is a way to guarantee interested buyers and a number of these buyers would be willing to snap up the property at this bargain price. This allows you to make your sale quickly and avoid the wait time that would likely have accompanied proper pricing.
Many homeowners looking for a quick sale either need to free up home equity quickly, are relocating, or have some other personal reasons.
Using as a Sales Strategy
In a highly competitive market, pricing your house lower than the appraised value can attract potential buyers. The strategy involves getting these buyers really interested in the property, and then adding a twist — a bidding war.
With several buyers interested in the property, you can pit them against each other and sell to the highest bidder. While this strategy has its merits, it also has a chance of backfiring.
Looking to Sell to Family or Friends
When most people sell to family members or a friend, they would likely want to give a discount in the form of pricing the property below market value.
The issue here is that this strategy has been used for a long time to avoid paying inheritance tax, capital gains tax, and gift tax, and as such, the IRS pays close attention when you sell to a family member.
The scrutiny is especially closer when it’s a non-arm’s length transaction. Such a transaction is regarded as a way to protect family wealth and self-interest. Therefore, when selling to a family member, the transaction must be just like any other home sale even when selling below market value.
When selling in an arm’s length transaction, you must prove that you aren’t trying to commit any of the acts that the IRS frowns against. Matter of fact, if a non-arms length transaction is done properly, the IRS views it as legal, and filing a gift tax return is all you would have to do.
Downsides to Selling Below Market Value With a Real Estate Agent
The usual strategy when selling with a real estate agent is to get the most amount that you can get for your property. So, what happens when you’re selling below market value?
Low Offers
When potential buyers bid on properties, they rarely ever bid over the listing price. The only exception is if you’re listing with an escalation clause. So, you can expect that the offers you get will be lower than your listing price.
You could therefore choose to indicate that you would only consider offers higher than your listing price. While this strategy may work, there’s also a chance that buyers looking for flexibility in pricing would not be on board with it.
Stigma to Property
Lowering your listing price to cause a bidding war can be counterproductive. This is in the sense that most buyers might assume there is something major wrong with the house that you’re not disclosing.
So, rather than make an offer at all, they would choose to avoid your property altogether. This also applies even if your property is in prime condition, so it gets stigmatized.
Also, some buyers might smell this strategy from a distance and choose to avoid making an offer and getting into a bidding war. They might also rationalize that if the low pricing is being used as a lure, then there’s no way they can trust the seller through the transaction.
Commission Payment
If you’re choosing to list your home below market value because you want to sell fast, you would still have to pay an agent commission out of that sales price. So, you would effectively be selling for less than standard, and still part with a percentage to your real estate agent.
This is something you need to factor in when choosing to work with an agent and when deciding on a listing price.
Selling Your Home to a Cash Buyer
Selling to a cash buyer helps solve the three issues that we have highlighted above. A cash buyer can close your home sale in as little as seven days, which allows you to experience a quick sale.
You do not have to list and wait for bids since a local cash buyer is ready to make an offer. Finally, you do not have to pay any commissions or fees.
So, rather than go through the hassle of pricing low to get an offer, you can simply opt for a cash buyer and get a cash offer. Whether or not your home is in prime condition, you will get a fair offer for your home’s value.
You can also skip making any repairs, renovations, or upgrades since a local cash buyer would buy as-is.
Who’s going to buy? We can help out with that! We buy houses that need serious repairs or are in various other conditions. At dsouzahomebuyers, we can provide you with a cash offer for your house in no time!
You don’t have to deal with any of this hassle. No need for repairs or renovations!
Fill out this form to get the process started, and we could be closing in as few as 7 days! Remember, no fees, no commissions, no closing costs!
If you have any other questions, definitely call us at (925) 503 8193.
Final Thoughts
Selling your home below market value can be a viable option. On the other hand, it may not provide you with the results that you were expecting. So, before exploring this option, ensure that it’s the best for you. If the reasons you’re looking to sell have to do with a fast sale or accessing cash, then you should consider exploring a local cash buyer.
