Why does it seem that almost all real estate starts out at an unrealistic price point to some degree, whether it is a little over priced like 2% or 3%, or a lot overpriced by 10% or 20%? And then there are some homes that get bid up from the asking price, but that seems to be the exception to the rule. Is it simply that human nature says that when you own something and you go to sell it, you always hold it more dear than others that may buy it? Or is it that a buyer is always looking for discount, and never thinks anything is worth the asking price? Some people point the finger at the real estate industry and say that Realtors almost always overprice listings to convince the buyer to go with them to list the property, and to make them think that they can win the highest price, when in reality the market will only bear whatever it will bear. This is called “buying the listing.”
It may be a question that never gets answered. But it would be nice to have some insight into the topic, so that sellers have a better grasp of how to price their property for sale.
Some people say that the price of a house is solely a marketing tool, and that a house is worth what it is worth, and what you ask for it does not have anything to do with what it will sell for. In that case, to attract more people to your property, this logic says you should always under price property and it will stand out, and it will get bid up to its natural price point with more attention.
If you believe in a free market, then maybe this is true. Maybe an asking price is irrelevant to what a house will sell for. eBay may be an interesting analogy. No matter what you are looking for on eBay there are usually other items for sale that you can compare the one you want to buy to. And ultimately the item sells for whatever it sells for, after being posted, and reposted, and possibly reposted again and again. So if you put your crystal bowl on eBay for $34 dollars knowing that you think its worth $100, will it get bid up closer to $100 by default? Or because you priced it so low to start will it only draw low bids?
I have one client who responded with the following when we were talking about how sellers and Realtors price property for sale: “My solution to brokers who give you highest selling price only to win the listing, is to make their commission contingent on the final selling price and use a sliding scale down based on what the buyer nets from the sale of the transaction. This is a great way to tell if they really think you can get the price they want to put the house on the market for.”
I talked a little bit about how Realtors get paid, here. Feel free to weigh in with ideas of your own.