This week on my podcast I explore my current duplex listing and our intentional underpricing to let the market efficiently determine the highest and best price. In light of this podcast episode, I am going to focus this week’s blog post on efficient market examples using two recent closings to demonstrate my point.
Additionally, I am going to share another recent sale to highlight an old blog post on the Los Verdes submarket of Rancho Palos Verdes.
Intentional Underpricing & Efficiency
If you listened to the podcast episode, I discuss intentionally underpricing a duplex in the expectation that it would create a fervor, multiple offers, and eventually sell for market price – or even an above market price.
Some will argue that a lower-priced property with more buyers is the only time that strategy works. Oftentimes, many higher-end sellers are worried about underpricing a property with a smaller buying pool – that is a fair and reasonable concern.
It is not always right to underprice a property to find market value, but in the case of two recent home “high-end” sales, the strategy proved to work – yielding a fast, efficient, and higher price which was likely market value.
The first example is in Palos Verdes Estates on a unique part of Palos Verdes Drive West.
- 3-beds, 4-baths, 3,042 sq. ft.
- Asking Price: $1,700,000
- Sold Price: $2,150,000
This property had awe-inspiring views of Bluff Cove in Palos Verdes and was on a small inlet off P.V Drive West. That said, it was the first home off the busy street subject to noise and the house was in major disrepair – it needed everything.
The only true comps to value a property like this would be the dozen homes or so on this small little inlet. Below are two past sales that were very different than the above subject property…
- 3,069 sq. ft. 4-beds, 3-baths, 3,069 sq. ft.
- Sold: $2,910,000
This, in full disclosure, was a listing I represented that was move-in ready; however, there were two bedrooms in the main house with a third that had some challenges with the fourth bed in an extremely useful ADU built up to the hill.
As a comp, it is hard to use it to value the dilapidated subject listing because they are so different.
- 1,959 sq. ft., 3-beds/2-baths, 1,959 sq. ft.
- Sold: $2,550,000
This second sale was a much smaller home, but it had been updated and sold around the height of the market in the spring of 2022. Again, tricky to determine for the exact value.
Buyers would need to use less direct comps and weigh the subject listing as an “art and a science,” essentially, making value in the eye of the beholder.
These sellers listed the property incredibly low at $1.7 million which was below $600 a square foot – a rarity in Palos Verdes Estates, making it a juicy proposition with world-class view despite its disrepair.
The strategy caused a handful of clients to call me and caught the attention of the entire market.
As a result, there was massive demand and a huge bidding war which yielded a final sale price $450,000 above asking. If the listing agent ran a fair sale, this was likely the highest and best price determined by the market of buyers.
A successful, efficient, and top of the market sale as a result of this strategy.
Some will sometimes claim you cannot take on this strategy at even higher ends of the market.
And while there are arguments that support that, below is another success story of an intentional underpricing with an excellent result on a very high-end beach property.
712 Marlita Street, Hermosa Beach
- 4-beds, 6.5-baths, 4,996 sq. ft.
- Asking Price: $4,999,000
- Sold Price: $6,025,000
When I saw this property debut on the MLS, I sent it to nearly all my clients considering the beach as it was an amazing opportunity.
Oftentimes, I discuss ranges of pricing by the beach and $900 to $1,200 a square foot is always discussed due to that range being a good barometer as a rule of thumb (obviously, not always, but good to help clients in general).
This property dangled the carrot at $1,000 a square foot for a prestigious street in Hermosa Beach and some of the best elevated views in all the Beach Cities.
A price of $1,000 a square foot on this street with these views was an absolute steal – even considering issues with the pool/hardscape and dated, but livable, interiors.
The comparble sales are all over the place that offer a guide to those looking at it from a rehab, tear-down, among other options. Ultimately, the value is in the eye of the buyer – take a look at some comps for consideration.
- Sold: $8,100,000
- In Escrow: $4,100,000
- Sold: $4,200,000
- Sold: $15,800,000
There are loads of comparables to weigh and balance from double-sized lots to homes with no views at all…which will yield varying valuations depending on what the buyer wants to do with the property.
Ultimately, 712 Marita underpriced intentionally, and it resulted in a sales price that went $1,026,000 over asking price.
The sale hit $1,200 a square foot, but the buyer will likely be in the home much more after presumed exterior and interior upgrades, which some might be willing to do for the amazing, elevated views.
Again, a truly efficient marketplace even for the higher end part of the market.
Another Tough Sale for Los Verdes
Looking back on an old blog post, I wrote about the Los Verdes submarket absolutely taking off during the Covid real estate run-up.
Recently, as the demand for “far away” Palos Verdes submarkets has subsided, I have written about the price depreciation in Los Verdes.
This is the climbing prices Los Verdes article in April 2021:
Rancho Palos Verdes’ Los Verdes Submarket Prices Roaring Higher
This is the depreciating prices Los Verdes article in October 2022:
Palos Verdes Home Markets Seeing Price Depreciation
As you can see from the depreciation link, Kings Harbor Drive perfectly illustrated the price pressures on this submarket. It is just not often you get an almost exact floorplan and condition comparable on the same street.
One sale closing at $2.2 million and five months later another closing at $1.985 million is a significant shift in just six months.
That sluggish pricing is definitely having an impact on the Los Verdes submarket with another listing going for the old May 2022 sale of $2.2 million, and unfortunately, only landing one closer to the October sale of $1.985.
- 2,242 sq. ft., 5-beds/3-baths
- Original asking $2,195,000
- Officially Closed: $1,746,000
This extensively upgraded home reached for the $2.2 million value of its May 2022 comp on Kings Harbor.
Unfortunately, it took nearly nine months from listing to close and sold for $1.746 million.
While the home is 300 sq. ft.smaller than the Kings Harbor comps, it still offers 5-bedrooms with a ot of upgrades. Even with all that, it sold $200k lower than the previous Kings Harbor depreciating sale I highlighted. Bad news for the submarket.
This is a really tough result for Los Verdes and loads of lost equity owners thought they once had – a home that sold a year ago for $2.2 million has a similar comp now in the $1.7 million range.
Any flipper in the submarket is likely very nervous and buyers in late 2021 and early 2022 may now have lower valuations than their purchase price – an incredible turn of events for a market that was one of the hottest in the South Bay in 2020 – 2021.
Final Thoughts
I hope you enjoyed a glimpse into intentional underpricing, its efficiency, and oftentimes, excellent results. Further, the Los Verdes submarket looks to be resetting back to its pre-pandemic valuations as work from home trends subside and buyers choose to be closer to work centers, entertainment, and the beach.
Richard Haynes
DRE: 01779425
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The Richard Haynes Real Estate ShowA leader in South Bay real estate for the better part of a decade, Richard thrives as an advisor to his clients with over $248 million in sales as a broker or investment principal at his boutique agency, Haynes. Richard is known for his keen local market insights which have been featured in the L.A. Times, The Street, and Forbes, along with his weekly South Bay real estate blog. [read more]