What does “transparent pricing” mean? What is “strategic pricing”? Why do some listing prices go up, even during the bidding process? We provide some answers.

Buying a house in the East Bay is not for the faint of heart. There are too many buyers for too few homes, so, over the years, an auction-style process has evolved. The sellers set a listing price, but everyone understands that it is more of an opening bid than an actual sales price. So, a guessing game ensues, and buyers understand they may need to bid at least 20% — or sometimes 25-50% — over that price. There are often multiple bids for each house (20-plus bids are not unheard of in Berkeley), and many buyers have to bid on multiple houses (sometimes a dozen or more) before they are successful.

It’s a nerve-wracking process that is constantly evolving. In recent months, some new terms and trends have started appearing, making the process seem even more complicated and confusing. Berkeleyside decided to inquire about some of these. Here is what we found.

1. What is ‘transparent pricing’?

Transparent pricing is a relatively new strategy in the East Bay, but the transparent price is called the “asking price” in the rest of the country.

“What it really means is, ‘this is a price that the seller will accept’,” said Jodi Nishimura, an agent with Pacific Union International.

In other words, a seller offering a house at a transparent price of $1 million will actually accept an offer of $1 million, rather than countering at $1.2 million or higher.

“I can’t tell you how many times I’ve written an offer higher than the asking price, and we were the only bid, yet our bid was rejected and countered at an even higher price,” said Carrie McAlister, an agent with the Grubb Company. “That situation can be very frustrating for agents and for buyers, obviously.”

A quick Redfin search showed a handful of houses tagged as transparent price listings over the past few months: they are still by far the exception rather than the rule.

Nishimura recently listed a four-bedroom, 3.5 bath house at 2232 McGee Ave. in Berkeley at a transparent price of $1.495 million, and it sold for $1.5 million.

“My sellers were very happy,” she said.

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Kathleen Wilson of Red Oak Realty, who represented the buyers, said her clients were “thrilled” as well. They had very specific requirements and a tight deadline, and they knew immediately that this house fit their needs.

Daniel Winkler, president and broker of the Winkler Real Estate Group, listed a house at 5738 Clover Dr. in Oakland for $1.595 million on March 21. The seller, a developer, did not get the price he wanted, so the house was re-listed on a transparent basis at $1.995 million on April 5. It sold a few weeks later for $1.94 million.

“We didn’t get what we wanted, but we made a deal,” Winkler said. “Pricing low drives eyeballs, but if you don’t get what you want you can try the transparent pricing approach. The market speaks in a very firm but soft voice. You have to listen to what the market is saying.”

The downside to transparent pricing, many agents said, is that the transparent price appears higher than houses which are “strategically” priced — that is, priced unrealistically low with the expectation of a bidding war.

“Transparent pricing can be misunderstood by the buyer population, because the price appears high and buyers are already conditioned to overbid,” said Laura Arechiga, an agent with Coldwell Banker.

Another potential hitch: buyers often set up search parameters online. So if they can afford to pay $1 million, they will often set their upper limit at $799,000 on search engines, knowing they will have to bid at least 20% more than the asking price. A transparent listing set at $1 million would not show up on their radar.

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Agents who want to increase the visibility of their listing will set their asking price at a low point, to show up in as many searches as possible.

“I had one buyer walk up to an agent at a house listed at $699,000, and ask what he thought the house would actually sell for,” said Andrea Gordon of Red Oak Realty. “He told her, ‘I would be surprised if it didn’t go for $1 million.’ My buyer walked out to her car and called me in tears. She said, ‘I can’t do this any more.’ It’s too painful for them to keep going to houses they won’t ever be able to afford.” (Berkeleyside covered this practice, which is also called “egregious underpricing.”)

Over the past three months, single family homes in Berkeley have been selling for an average 23% over the asking price, Wilson said. The median list price in Berkeley is $995,000 and the median sales price is $1,225,000, she said.

While transparent pricing can reduce the stress level of buyers, sometimes there is more than one bid even for a transparent listing.

“It’s pretty common for there to be multiple bids with transparent pricing, but they are all pretty close to the asking price, in my experience,” Gordon said. “It’s inevitable that when a buyer finally decides to write on something, that day there will be three or four more offers. It’s Murphy’s law.”

The seller is still free to accept or reject any offer, or to wait for more offers to come in. There are no clear guidelines regarding offer dates: sometimes there is a set time for offers, and other times offers are considered as they arrive.

There are many reasons why sellers might choose to use a transparent listing. Sometimes it’s because they are still living in the house and want to minimize the number of people coming by to look. Sometimes there is an illness in the family or they themselves bought the house fairly recently, and they need a certain sales price in order to pay off their mortgage. Sometimes they just resist an “egregiously low” listing price, because they saw what nearby houses sold for and want to ensure that they get offers in that range. Sometimes a seller just needs to sell very quickly.

2. What is “strategic pricing”?

“Strategic pricing” is the norm for listing houses in the East Bay: the listing agent and the seller look at comparable houses in the neighborhood, and determine what they think a house might sell for. They then settle on a listing price that is significantly less than that amount, usually around 20% less. In auction terms, the strategic price would be an opening bid that is not expected to stand as the final sales price.

“When you come up with a listing price that’s the best strategic price for that specific listing, a lot of sellers will flat-out tell you ‘I won’t accept an offer at that price’,” said Deidre Joyner of Red Oak Realty. They want the right to reject offers unless they are significantly higher than the listing price, she said. “When you work for a seller, your fiduciary responsibility is to get the highest and best offer. But if you price a home too high, you will lose some of your audience.”

3. Why does the price of a house sometimes go up within a week or two of the listing?

Sometimes strategic pricing backfires: the price is set too low, and there are way too many inquiries for a particular house.

“I saw a fixer listed at $599,999, and it had an unprecedented number of inquiries,” Joyner said. “A total of 160 disclosure statements went out. They increased the price because there was more interest than they could handle.”

In other cases, houses which were strategically priced but didn’t get acceptable bids are re-listed at a more “transparent” and higher price, in an effort to get a bid that’s acceptable to the seller.

4. Some homes are sold ‘off-market.’ How do you find such houses?

A small number of houses are sold off-market in the East Bay, even in a hot market. Sometimes it it due to divorce or other personal issues, and the sellers don’t want to advertise the sale publicly. Sometimes there are safety issues, and sellers or agents don’t want the liability of dozens of people walking through. Typically, these houses don’t appear on the MLS, or on real estate websites that buyers can visit, such as Zillow and Redfin, and they are marketed directly to agents.

These transactions are the exception rather than the rule, and many of them are transparent listings since bidding wars are not expected due to the lack of visibility. The only way of learning about these off-market listings is by working with an agent.

5. How do I know if I overpaid for my house?

That is one mystery beyond even Berkeleyside’s ability to answer.