The Inventory Effect

In a market like Miami, where demand has managed to outpace inventory, certain agents have shown a willingness to drop prices far below comparable homes in an effort to incite a bidding war. And while some agents have found momentary success with that strategy, Giordano, Morales and Monge agree the practice is more risky and ethically questionable, despite Miami being described a “seller’s market.”

“I feel under pricing to incite a bidding war causes a lot of stress for the buyers because if the buyer can’t afford to go any higher, they’ve now gotten their hopes up on a property they never had a real chance to acquire,” Giordano explained. “I think the strategy is unfair and unprofessional.”

There is also considerable risk on the part of the seller, who may not get the multiple offers necessary to drive the price past its market value.

“The correct price is the correct price,” Morales said. “If you want to sell it, you need to price it correctly.”

In 2013, when a resurgence of strong demand pushed home prices on a rapid ascent that far outpaced inventory growth, which was already low, multiple offers were commonplace and bidding wars were a real possibility despite an agent’s intentions when pricing. However, since 2014, the city’s inventory has improved. In June, Miami’s single-family home inventory was at a 4.9-month supply, compared to a 5.0-month supply nationally, while condominium inventory was a more robust 8.9-month supply, up from 7.8 months in June 2014.

In today’s South Florida market, demand is still pushing prices to heights reminiscent of the early boom years, but with a new understanding of the pitfalls that lead to the 2007 bust, agents and the industry as a whole are being more careful in their processes and strategies. Builders and developers are working to pad inventories; lenders are more stringent in their standards; and agents are refraining from playing the market and zealously encouraging higher prices to fatten their own returns.