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Before listing her house, Mary had wisely interviewed three agents. This is a smart move, even if the first or second agent makes you feel comfortable enough to list your house immediately. Without multiple interviews, you have no way to compare each agent’s marketing plans, including their price recommendations.

Each agent had proved Mary a written price opinion, which is called a comparable market analysis (CMA). Two agents had recommended a similar price, and the other had suggested a price that was a bit higher.

Mary said one of the agents told her she could get $20,000 more than the other two agents had quoted. The agent was so enthusiastic, believable and convincing that Mary really believed this agent. After all what did Mary know about market values? This agent was an expert.

"Buying" a Listing

What probably happened is the agent "bought" the listing by quoting Mary a higher price during her presentation, knowing that Mary’s house would never really sell at that price. More likely than not, the agent intended to wait a few weeks before convincing Mary to lower the price.

This is commonly called "buying a listing."

Mary’s situation demonstrates a valuable lesson for sellers: if one agent quotes you a significantly higher price than the others, that agent is probably not the right one for you. The market doesn’t lie, so each agent you deal with should arrive at a very close figure. If you list your house higher than market value then drop your price later, your house will be "market worn." Your final selling price will probably be lower than if you had listed it correctly in the beginning..

Let’s say you list your house for $150,000 but it’s really worth $140,000. Buyers in the $140,000 range will never see your house because they’re not looking at $150,000 houses. They can’t afford them. And $150,000 buyers will be comparing your house to others that are truly worth that price, meaning those houses will sell while yours just sits there. In fact, many agents will show an overpriced house for comparison when they’re trying to sell their listings that are more realistically priced.

Why do Some Owners Overprice?

Often it’s on their agent’s advice, which we just discussed. Another reason they’ll overprice is based on past value. Assuming a house appraised for $140,000 three years ago, they’ll add an annual appreciation rate of three, four or five percent to come up with $150,000 or more. Makes sense, right? But that’s not valid reasoning. I’ve never found any research to indicate that a home is guaranteed to appreciate.

Your house is worth what today’s market says it’s worth, regardless of what the house was worth one, two, five or ten years ago.

Comparing Home Prices to Stocks

Houses are just like stock. Hopefully they go up in value. Sometimes they come down. If you paid fifty dollars for one share of IBM stock two years ago and it’s valued at $30 per share now, would you expect to sell your stock at what you paid ($50) plus a profit? Of course not. Well your house is the same. A property’s value is determined by today’s market, not by yesterday’s value plus appreciation.

Mary’s price was too high. That’s the number one reason it hadn’t sold after four months.

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