An open letter to the real estate community regarding the “epidemic” of under-pricing
(first published May 2005)

You know the practice: suggesting, or going along with a seller’s idea, that the best way to obtain the highest price in the sale of a house is to deliberately ask a price that is well below what you expect it to sell for. A more odious variation: agreeing to list a property at a price the seller has told you he would not accept. You figure this is pretty safe: everything gets bid up these days. The SF Chronicle recently dubbed this the “under-pricing epidemic.”

Sometimes this practice is blatant, as when the agent puts in the confidential remarks section of the MLS: “seller reserves the right to reject any and all offers.” Other times, it is hidden, as when offer day comes and you, the buyer’s agent, deliver the only offer. You are then countered at a price ten of thousands, and sometimes, hundreds of thousands of dollars more than the asking price. In essence, the buyer is being told to bid against himself.

Doesn’t anyone (at the very least, the listing agent) see what is wrong with this? Totally ASIDE from the human toll (disgruntled, disillusioned and desperate buyers, sometimes willing to pay anything just to get a house) and the negative image this casts on our profession (what about our duty to be “fair and honest and deal in good faith”), we may have an even bigger problem.

The issue is fraud. My dictionary defines this as “a piece of trickery; a trick.” Therefore, the agent who knowingly agrees to list a property for less than what the seller will accept is a party to fraud. Secondly, it is “false advertising,” a violation of real estate law. Business and Professional Code section 17500 states:

To Make or Cause to Be Made False or Misleading Statements in Unlawful

17500 It is unlawful for any person, firm,…with intent directly or indirectly to dispose of real or personal property or to perform services, professional or otherwise….to make or disseminate�any statement concerning that real or personal property…which is untrue or misleading, which is known, or which by the exercise of reasonable care should be known, to be untrue or misleading, or for any person, firm…to make or disseminate….a plan or scheme with the intent not to sell that personal property…so advertised at the price stated herein. Any violation of the provisions of this section is a misdemeanor punishable by imprisonment in the county jail not exceeding six months, or by a fine not exceeding two thousand five hundred dollars ($2,500) or by both that imprisonment and fine.

In our office, we have made is a policy that the asking price on any of our listings is a price the seller will accept if that is “all” they receive. This hasn’t stopped us from receiving multiple offers and large overbids. But this is the doing of the market, not the result of a calculated ruse.

We know we have lost listings because of our pricing policy. We’ve heard that other agents dismiss a seller’s ethical concerns with the statement “everyone under-prices. It is expected.”

This has gotten out of hand.

Respectfully Submitted,

Brett Weinstein Broker, Realty Advocates

Postcript:

Within days, we had received many letters of support from fellow Realtors. We also heard through the grapevine that any number of Realtors were quite upset with us. Guess who they were: the ones that deliberately underprice their listings to make their statistics look better (i.e. “my listings consistently sell for 20% over their asking price!”).

A few months later, the Berkeley Association of Realtors dedicated a lunch seminar to the topic, with the attorney for the East Bay Regional Data as the guest speaker. While she conceded that the practice of deliberate underpricing could have some negative, nonlegal consequences, she completely dismissed my interpretation of B&P Code 17500, saying in effect, that the prohibition against deliberate false advertising applied only to personal property, not real property. Therefore, according to her, it is perfectly legal to falsely advertise a house but illegal to falsely advertise a digital camera, for instance.

The bottom line, again, according to her, was that listing agents have the primary fiduciary duty to the seller to get the highest possible price, and that false advertising was a perfectly legal means to this end.

After the meeting, one agent who shared my view shook her head with disgust and said: “we should have known better to ask about ethical conduct from an attorney.” A moment later, an agent who did not share my view said: “nice try, Brett. Now get real.”

PPS:

Within about 6 months of this meeting (June ’06), the seller’s market juggernaut in our market area sputtered to an end. Now, even if one deliberately underpriced a listing, there would be a 50/50 chance that you still wouldn’t get a single bid, let alone one over the asking price.