What Is Transparent Pricing?
When you bring a house on the market, setting a price is far from a cut-and-dried affair. There are many factors that go into setting a price, some more concrete than others.
It is common in San Francisco to price a property below what a seller wants. For many years, sellers have enjoyed a robust market where buyers are willing to pay above list price, sometimes a great deal above, in order to secure a property. But occasionally a home is listed at exactly the amount the seller is willing to accept; this is known a transparent pricing. So how do sellers and agents come up with a suitable list price?
On the one hand, a house’s value can be derived from what similar homes in the area have sold for. These are known as comparables, or comps. For example, if you were to list a 3 bedroom, 2 bath house on the south slope of Bernal Heights, you’d look at similar sales in the past six months, weigh what factors make your home more or less marketable than those, and use that data to come to a price that might be appealing to the market.
(Note that this is not the same thing as an appraised value. Appraisers use a more sophisticated method to come up with a number that indicates the value to the lender, so they can determine how much they are willing to lend against the property. It’s not uncommon for buyers to pay more than the appraised value, but this does have implications if they are using financing.)
But San Francisco has two things that can shift the market value significantly. First, the housing stock is highly individualistic, making it more difficult to derive exact comps. Second, it is a historically competitive market, with significantly less inventory than demand, putting upward pressure on final sales price.
When an agent lists a property, they may derive a price they think the house will sell for, and then make adjustments to that for a variety of reasons. For example, if the expected sale price were $1,050,000, they might price it just under $1 million. This ensures that buyers searching at the $1 million and below mark will see the property, knowing they may have to stretch their budget to find a house that works for them.
Overbidding is fairly customary in San Francisco, but if the market is exceedingly tight, and when certain areas become extra desirable, the amount overbid can go up markedly. We saw exceptional highs in 2021, with some properties going for nearly double the asking price.
Sometimes a seller will bring a property to market with hopes that they can take advantage of a hot market. However, if the market performance doesn’t meet their expectations, the agent may adjust the listing price — sometimes upward — to match what the seller is openly willing to accept as an offer. This is commonly referred to as transparent pricing. Think of it like the Buy Me Now button on eBay, but for homes.
Transparent pricing is not often noted in public-facing information, but the selling agent will let prospective buyer’s agents know so they can set their expectations accordingly. If a buyer comes to the table willing to pay the asking price, both parties are satisfied.