How do sellers and real estate agents determine what the listing price of a home will be? Good question. We often ask ourselves, "How did they come up with that price?" Often, the sellers themselves determine the price, and most real estate agents just go along with it. Other times the agent does a CMA (comparative market analysis) to determine value. Agents generally look at what sold in the last six months in the same neighborhood. They then base their price on these comparisons.
Sometimes this comparison can be very difficult and misleading. What if a so-called comparable home recently sold for $50,000 too much because several buyers got into a bidding war? Typically, with bidding wars, ego is the driving force, and ego really doesn’t have any valid impact on home values. But "There it is…the best comparable…in the same neighborhood…so this home must be worth the same or very close" is the rationale that the typical seller and agent uses. This is a real danger for buyers today in the Austin real estate market. The home, if it is a good comparison to the one that sold, is really only worth what the other home started out at, not the $50,000 over the asking price it sold for. Just because someone got carried away when they bought the home doesn’t drive up the price of the next similar house unless the home was actually priced $50,000 under market value, which does happen, but not that often.
If you walk into any real estate office and ask five agents to price a property you will most likely get five different prices, and they may vary as much as $100,000. On the other hand, there are agents who really know their business and how to price property and are very accurate in determining market values. However, these agents may run into resistance from the seller and may have to compromise the listing price for two weeks or a month before the seller is willing to lower the price to what it should be. We have been in that situation and, while we’ve advised our client what the price should be, we sometimes had to put the house on the market for a higher price to satisfy our client. Over priced homes usually end up being a better deal for buyers if they are willing to wait. The longer it stays on the market, the lower the price will go.
