[ryandamm]

For all the comments about listing shenanigans, we're overlooking a basic game theory issue here: when you set a price that looks to be near the value of the home, you're saying you're willing to accept reasonable offers. You're setting an implicit cap on the value of the home.

An obviously undervalued home, though, in addition to driving up interest (and creating a bidding war), suggests a much fuzzier cap so there's less signaling around price and a less obvious ceiling to offers. In other words, buyers are stuck wondering what other buyers might offer, rather than discussing whether to go some normative amount over the ask (like 10-20%).

Also, there's a 'curse of the winner' dynamic in auction-like environments, where the deal will necessarily go to the party that values the asset the highest. (This is evidently destructive to profits in oil and gas leasing auctions, for what it's worth.)

I think that's the dynamic, because no one is actually fooling anyone by underlisting prices, and real estate agents talk to each other and know immediately if something is priced to generate interest, or if the price is closer to what the buyer expects.