Pricing in a changing market

It's always interesting to see how home sellers view the pricing of their homes.
Of course, most sellers believe their house is worth more than it actually is. Heck, I'm no different with my own house!

Often times sellers will want to list their house at a higher price than is realistic. The common logic behind this is the assumption that all offers occur at a fixed portion/percent of the asking price (I.e. 95% of the list price). So the rationale goes that "the higher I list, the higher I will sell for"

But that's not the case.
House prices are set by the market forces - what buyers and sellers *agree* that a house is worth. That's when a sale happens and that's when "market value" is established.

The further away a list price is from "market value", the lower the offer (if any) it will attract. Buyers and Realtors recognize over-priced homes and make offers accordingly.
All they have to do is see what comparable homes have been selling for recently, in the same area.

And when a seller reduces their list price to closer to market value, the offers that come in, start off closer to the asking price because buyers recognize the value.

Finally, when a seller lists their home *below* the market value, that's when multiple offers (bidding wars) occur.

Has anyone ever seen a bidding war start on an over-priced house?
Nope.

So as the list price comes down, the initial offer price comes up.
They meet around "market value" and then if they were to continue their respective paths, and the list price drops below market value, the offer price can actually move *above* market value! And that's often when you have multiple buyers wanting in on the "deal".

That's the effect of open market forces on the real estate market.