Should you underprice a California home to start a bidding war?

Underpricing is a party invitation. It only works if people show up.

Underpricing means listing below where the evidence says the house will sell, on purpose. The goal is more showings, more offers and buyers bidding against each other until the price climbs past where it would have started.

In parts of California, this is close to standard practice. In an April 2026 report on February sales, Redfin said Bay Area home sellers are known for underpricing their homes to fuel bidding wars. Redfin found that only 7.4% of February home sales in San Francisco included price cuts, the lowest share among the metros in the report. San Jose (11.1%) and Oakland (14.3%) were also near the bottom. Nationally, the same report said a record 34% of February sellers cut their list price.

That gap tells the story. Where buyers are lined up, a low price is bait. Where they are not, a low price is just a low price.

A list price is a marketing decision. Value is what the market proves. Those are two different numbers, and the trouble starts when people forget which one they are looking at.

How to tell which market you are in

Don't decide from a feeling, a neighbor's story or a headline. Measure it, and measure it now. A 12-month average can tell you the market is hot long after it cooled. I start with the shortest window the data supports, often the last 30 or 45 days, and only widen it when there are too few sales.

For pendings, I estimate a predicted close: the asking price times the sale-to-list ratio measured on recent similar sales, with a lower measured ratio for listings that sat past about 40 days. It is the closest thing to a live read the data offers.

Read sale-to-list with care. In a neighborhood where everyone underprices, a 110% ratio may say more about the list prices than about rising values. I explain that trap in the sale-to-list post.

A hypothetical: one house, two markets

Say a 1950s three-bedroom ranch in Fremont. The best adjusted sales point to a range of about $1,380,000 to $1,440,000. Every number here is made up to show the idea.

Hot market version. Similar homes closed at about 109% of list over the last 30 days, in about nine days on market. The seller lists at $1,299,000. Forty groups tour the first weekend. Eight offers come in. The winner is $1,520,000 with an appraisal gap clause. The underprice did its job: it pulled a crowd that bid past the range.

Cool market version. Same house, but similar homes closed at about 98% of list over the last 45 days, and days on market are climbing. The seller lists at $1,299,000 anyway. Two offers come in near $1,330,000. Now the seller is stuck choosing between taking less than the evidence supported, countering and hoping, or pulling the listing and relisting higher. That last move looks to buyers like a seller who doesn't know what the house is worth.

Same house. Same price. Opposite results. The difference was the market, and the market was measurable before the sign went up.

What happens at the appraisal when the price jumps

Back to the hot version. The contract is $1,520,000. The buyer's lender orders an appraisal, and the appraiser has to deal with the whole story.

Fannie Mae requires the appraiser to report whether the home was listed in the 12 months before the effective date, with each offering price, date and the days on market, and to analyze the contract. So the $1,299,000 list price and the eight-offer weekend are both in front of me.

Neither one sets the value. The low list price was a strategy, not evidence that the house is worth less. The high contract is one buyer's number, not proof the market moved. What I can use is closed sales, pendings read at predicted close, and a time adjustment if the trend supports one. Fannie Mae says time adjustments, or the lack of them, must be supported by evidence.

Say the evidence supports $1,440,000. Fannie Mae has the lender use the lower of the sales price or the appraised value. The price gap is $80,000. If the buyer planned on 20% down, the loan drops from $1,216,000 to $1,152,000, and the buyer needs $64,000 more cash to close.

That is why a bidding war needs a gap plan. For the buyer's side, read will the house appraise if we offered way over asking.

What I see in the field

The most common mix-up: the seller underprices to start a war, wins it, and then expects the appraisal to bless the top bid. The appraisal doesn't care how exciting the weekend was. It cares what similar homes closed for, adjusted to this house and to today.

The second one: buyers who think the list price is the value. An underpriced list is an opening line. Bidding to the top of a well-measured range is not overpaying. Bidding past it might be.

When a bidding war is real and widespread, it does show up in my work. Pendings start reading above the last closed sales. The short-window trend climbs. When the next sales close at the new level, the next appraisal gets to use them. That is how a new price is earned: one recorded sale at a time.

A bidding war tells me demand is strong. It doesn't tell me the last $40,000 was paid by the market and not by one buyer who fell for the backyard lemon tree.

Before you price low on purpose

One rule first. Under California Civil Code section 2079.16, a seller's agent owes the buyer, as well as the seller, a duty of honest and fair dealing and good faith. Pricing low is a strategy. Telling buyers something untrue about it is not. If you are unsure where that line sits, ask a real estate attorney.

1. Measure the last 30 to 45 days of sale-to-list and days on market for truly similar homes.
2. Count the competition. Underpricing next to three better listings just makes you the cheapest house on a slow street.
3. Know the evidence range before you pick a number. A pre-listing appraisal gives you one in writing.
4. Set the offer plan up front: an offer date, how you will handle counters, and the lowest price you would accept.
5. Ask for gap terms. An offer with an appraisal gap clause and proof of cash is worth more than a bigger number with none.
6. Have a plan B if only one or two offers arrive. Decide it now, while you are calm.