Why Is That House Priced So Low?

Joe Dickerson Group
Joe Dickerson Group
Published on May 8, 2019

If you’ve been following the real estate market in Oakland, you’ve probably noticed a giant discrepancy between list price and the actual sold price. This difference can amount to hundreds of thousands of dollars. I’ve seen multiple sales this spring with a list price around $799,000 that end up selling close to $1,200,000!

Why Does This Happen?

This trend started appearing in Oakland back in the spring of 2012. In the chart below, you can see the divergence between list price and sold price over the past 7 years, culminating in where we are now – on average in Oakland, homes sell for 13.5% over their list price.

Home sales in Oakland from 2012-2019. Data from BridgeMLS.

The year 2012 coincided with the kick-off of our last seven years of strong appreciation. On a macro level, home sale price appreciation simply outpaced the list prices. But why?

At first, list prices could not keep pace. If the house next door to yours was listed for $599K and was under contract for $650K, you’d be highly likely to list your house at $599K, since buyers shop by comparison.

Buyers in the market may have watched what happened with your neighbor’s house, so they may have ended up bidding your home up to $660K, knowing that that’s what it’ll take. When a second neighbor goes to sell their home, they will likely continue to list close to $599K, because that list price now has a proven track record.

What Now?

Now fast forward to present day. We are seven years into this trend, and we’ve gotten ourselves into a pickle. Oakland sellers and real estate agents have a challenge pricing transparently, because that’s not what the market expects.

Home buyers here in the East Bay have been trained to expect that houses will sell for over their asking price. Pricing at or closer to market value will make it look overpriced in comparison with the other homes available for sale.

This low pricing serves a second purpose for sellers. An attractive list price is more likely to drive interest to the property, making it more likely the seller will receive multiple offers, and create an auction-like mentality among buyers.

As much as I hate pricing a home below market value, in most cases it’s the strategy that will bring about the best results, highest price, and fastest sale for sellers in Oakland.

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