Many homebuyers make the mistake of assuming the price listed with a home is somehow related to the actual value. In fact, the price often is not.

What is the fair price of a home? Many would argue the fair price is the one agreed upon between a buyer and seller when negotiations conclude in the offer and counteroffer process. While this is certainly one approach to the situation, many buyers make the mistake of assuming the listing price on a home has some inherent relationship to the appraised price. This is sometime incorrect because of issues involving the seller.

Obviously, the first issue to consider with pricing is the natural tendency of the seller to try to get as much as possible for the property. In practical terms, this means the property will almost always be priced above what the market will support. It may be just above or well above, but it will definitely be above. The only exception to this situation is if the seller is motivated to sell fast for some reason such as divorce. In said situations, the seller may price the property at or below what the market will support.

A less obvious motivation for overpricing a property boils down to simple financial numbers. If you own a home, you are bombarded with offers for home equity credit lines. The credit line is essentially a way of liquefying the equity in a property. Many people use these lines to pay a wide variety of bills. When it comes time to sell the property, however, they suddenly realize their profit from it is going to be very small. In such a situation, the natural reaction of the seller is to ask for price at the high end of the local market. In such a situation, the seller is unlikely to be amenable to negotiating down the price because they simply cannot.

When looking at homes it is important to understand the motivation of the seller when setting the asking price. Doing so allows you to determine if the price is negotiable or the seller is stuck.