It can be difficult to price property as a seller, but another interesting puzzle is how a buyer should respond to a low (super-low) asking price.  There are several scenarios where a list price might be quite a bit lower than expected:

• the property is owned by a bank, as a result of foreclosure, and they want to sell the property quickly
• the property's owner is in a desperate situation such that they need to sell quickly, and they're willing to sell well below comparable properties even at a loss
  
• the property's owner bought many years ago, and thus can sell it well below comparable properties, and can still make a profit

So, given a property priced well below where it should or could be priced, what is a buyer to do?  There have been several such situations lately, and oftentimes the ultimate sales price is above (or well above) the asking price. 

The problem, of course, is that buyers are making a decision about an asking price in a vacuum!  They don't know if there will be multiple offers, if any of the offers will be as high as asking price, if they will be above asking price, etc.

The best solution, in my mind, is to use a relic from the recent past --- the escalation clause.  This allows a buyer to make a bid that they hope will win the day, but also to provide an automatic method for increasing that offer should another outbid them.

More specifically, if a house is listed at $125k that we think should sell at $225k, a serious buyer might want to:

• make an initial offer of $150k that they hope will be the winning bid
• automatically increase that offer by $1k increments up to $185k to try to outbid any other offers that are made

While I find that the above can be the most effective method or negotiating such a situation, I also find that many buyers are not willing to go very high ($185k, as per above) to buy the property.

My question, in that situation, is this --- if the above referenced property were not one with a low list price, but instead were listed at $229k, would you not be highly interested if you knew you could negotiate it down to only $185k?

The issue at hand, I believe, is that it is hard to be comfortable with exceeding the asking price of a property in a buyer's market.