The line for the open house stretched all the way down a steep hill.
Dozens of people lined up late January to view a mid-century modern-style home in Montclair, New Jersey, a suburb of New York City. Priced at $949,000 with a view of the Manhattan skyline, it seemed too good to be true.
More than 100 people toured the home, standing in line for over 45 minutes. By the end of that weekend, eight offers came in. The winning bid that was just revealed in late March, as it takes two months to close on the sale of a home: $1.32 million cash. That’s $370,000 over asking for a home that needed updating.
“It’s pricing for energy,” said Julie Kim, an agent at Sotheby’s International Realty Prominent Properties. Real estate professionals use this strategy of pricing a home low to drive more people to potentially bid on the home.
“You want to get as many people in the door as possible,” she explained. “You want them to bid high.”
Kim was not the listing or the buyer’s agent on the mid-century modern property, but has employed the strategy as an agent, especially in a hot area like Montclair. She visited the open house as a realtor, which was hosted by the Amy Owens team of Keller Williams.
Fear of Missing Out
Pricing for energy taps into the psychology of Fear of Missing Out: known as FoMO. According to a journal published in the National Library of Medicine, FoMO includes two processes; the perception of missing out, followed by the compulsive need to maintain those connections. The behavior is exacerbated by use of social media.
The mid-century home was featured on the popular Zillow Gone Wild social media sites. A team of agents directed the people traffic in and out of the house. Cars were parked down a stretch of about half a mile.
In the same township, another contemporary-style home priced at $1,095,000 sold for $1.73 million cash.
The fear of missing out is driving people to bid high.“In this market, there’s so little inventory you don’t know when the next home is going to come on the market,” Kim said.
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Low inventory
The real estate market is in a difficult spot, with low inventory being the culprit. The National Association of Realtors reported that home prices have risen 30% across the country since 2019. As a result, the typical American home is $80,000 more since pre-pandemic. Meanwhile, the number of homes for sale reached record lows in 2021 and continues to be low as people hold on to their homes with low mortgage interest rates.
“I have so many buyers,” Kim said. “It’s very difficult.”
Given the inventory situation, real estate agents have priced homes to draw a big crowd, she said. Many people are just looking, but the serious buyers will emerge from the crowd.
A buyer can spot if a home will go into a bidding war by checking the comparable sale prices within the past few months on similar homes in the neighborhood, Kim said. Do not go by the listing price, which may be used to attract attention.
“Low inventory is a big factor right now, and pricing strategy is a big part of marketing,” Kim said.
