Why all the Underquoting?
Mar 15, 2023
Can quoting a low price really result in a higher price? It seems that way … but how does it work?
Property buyers are always complaining about underquoting.
So why do agents do it?
- It is too difficult to value the property with confidence so the agent wants the market to decide what the property is worth. If they start low the interested parties will push the price up to the market value. If they start high they may have no interest and “go stale”.
- The agent believes it will result in a higher price.
The thinking behind the latter point is that by quoting low the agent will attract a large number of interested parties, and even though many of them may only be interested at prices lower than the vendor wants they will drive two critical behaviours:
- Social Proof. The more other people there are bidding for the property the more confident we feel that we’re doing the right thing and not making a stupid mistake. Our FOPO (Fear Of Overpaying) disappears and we stretch beyond our original budget.
- The Endowment Effect. We tend to value something more when we think of it as our own, even more so when the thing is rare and special. In an auction, this means you’re often more willing to pay up if you expect to win. Once you’ve started to bid, your expectation of winning goes up and the thought of losing becomes undesirable, driving you to bid higher and higher in an attempt to win what is “rightfully yours”.
While property buyers are always complaining about underquoting, I’ve never heard a property vendor complain when underquoting gets them a higher price.
Speak to your buyer’s agent to find out how you can actually turn underquoting to your advantage.