"Hot Market" Under-Pricing Technique

During a "hot market" there is a certain marketing technique which, though very effective, could cause trouble because of the way the contract is written. This is the practice of "under-pricing" the home. In a hot market, a home that is under-priced gets a lot of attention from other Real Estate Professionals, and they all start showing your home to their clients. Often, you get into a situation where multiple offers are presented and the price starts going up because of the frenzy. You end up selling the house above your asking price and perhaps above what you could have received if you had priced it traditionally.

However, the technique does have the potential to backfire, so you should build safeguards into the listing agreement to prevent having to pay a commission "just in case."

You see, the listing contract usually states that if an offer is received that meets the terms presented in the contract (including price), the real estate agent has earned his or her commission – even if you decide not to sell. A reputable agent would not attempt to collect a commission if they were using the "under-pricing" technique and it backfired, even if they are technically entitled to one. But, to avoid confusion, it would be advisable to specify your true target price in the "additional terms" space on the listing contract to identify when the agent has earned a commission.

Seller's Duties and Liabilities

Sellers of California real estate have duties under the law to provide full disclosure about the condition of the property, the natural hazards associated with its land and location, the environmental hazards and neighborhood influences on the value or desirability of the property.  In addition, sellers must reasonably accommodate buyers in their rights to inspect the property, having all utilities operating. 

Sellers liabilities to their buyers continue if they fail to make disclosures of known property defects; thus it is imperative that they provide full disclosure.  In addition to information directly from the seller, many other disclosures are made by third parties.  These are paid for by either the seller or buyer and include the natural hazards report, often a pest control inspection report, and specific city reports and inspection requirements.

Requirements Imposed by Municipalities

Cities impose varying demands on sellers.  These include site inspections, building report summaries, or simply tax on the selling price.

As an example, the City of Redondo Beach charges $2.20 per $1,000 of the selling price and requires a building permit summary to be acknowledged by the buyer as a condition of sale. 

The City of Rolling Hills Estates requires and on-site inspection unless waived by the buyer. 

Palos Verdes Estates requires the seller to obtain and the buyer to acknowledge a building report summary.  In addition, the Palos Verdes Homes Association strongly recommends that buyers require sellers to provide a Letter of Completion and Compliance prior to the conclusion of a sale.  This would alert buyers of anything done to the exterior of the property without approval. 

The City of Los Angeles requires a transfer tax of $4.50 per $1,000 of the selling price above the recorded mortgage indebtedness of the seller.  In addition an affidavit must be deposited by the seller or his approved representative that required water-saving devices have been installed, gas earthquake shutoff valves are installed, and proper shatterproofing is provided as required on windows.

Thus, with such variations, it is essential that the specific requirements of each municipality be investigated. 

Sellers' Responsibilities 

Specific information is provided in the comprehensive purchase agreement that is commonly used in California real estate sales.  This purchase agreement was prepared by the legal staff of the California Association of Realtors (CAR), incorporating protections for both buyers and sellers and meeting requirements of real estate law.  

A full complement of forms provide for all required disclosures and other transaction documents.  An overview of this material is provided in below in this section of the website.  

Please click on the topics of interest:

Seller's Disclosures


Transaction Documents

Other Considerations


For additional information on selling a home, click on the red buttons 
"Buyer" and "Seller"

Donna States
Donna States
Broker Associate
No Address Provided Torrance CA 90505