Couple A puts their home on the market for $300,000. That price represents 20% less than what a few comparable homes in the area have sold for recently. Couple A knows they need to price the home at a significant discount in order to attract buyers in a tight market. But they are resigned not to negotiate. That $300,000 is their final price.
Couple B lives down the street and want to move south to a golf community. Their real estate agent provides them with the same comparable sales data Couple A viewed and suggests they price their home at $375,000, the average of the comparables, and 20% higher than Couple A. They figure that potential purchasers will expect to negotiate, and they have decided they will go as low as 15% less than the list price.
In this example, Couple B are market psychologists, and Couple A are market realists. Couple B believes, with some evidence to support them, that buyers expect to negotiate a reduction in price, especially in a buyers market, and they have built that expectation into their price. But Couple A decided that, in a tight market, it is better to grab the attention of as many buyers as possible than to attract a relative few and then give them the satisfaction of negotiating a bargain. Couple A can afford to turn down any offers below their asking price because, chances are, potential purchasers will keep landing on their doorstep, given their low list price.
The moral of the example cuts both ways, for buyers as well as sellers. If you are selling your home, your chances in this market may be better if you list it near the ultimate price you want rather than list it higher and leave wiggle room. As a buyer, understand that a home whose owners won't negotiate a lower price is not necessarily to be discounted. Pun intended.
