Fall Into The Gap

Take a look at this recent article by University of Chicago economics professor, Austan Goolsbee. It originally ran in the New York Times. Mr. Goolsbee highlights an obvious but often ignored fact of residential real estate sales: a house is only worth what someone will pay you for it. Home values are governed by supply and demand just like any other product or commodity. But unlike wheat, widgets, and washing machines, homes are repositories of personal memory and emotion, neither of which have much if anything to do with market value. When farmers grow too much wheat, they lower their prices to stay competitive. Yet somehow, when there are too many homes for sale, sellers often prefer to price their homes for what they wish they were worth, not what the market will bear. This creates a glut of inventory in the marketplace, as buyers and sellers stare at one another across an ever-widening gap, each unwilling to accept the other's assessment of value. It is this gap that accounts for the gloomy sales statistics you've been reading in the newspapers lately. When buyers and sellers are so far apart, there's no room for negotiation and the market becomes stagnant.
So what's the lesson? If you're not ready to accept your home's true market value, then you're not really ready to sell. And that's okay, assuming you don't really need to. But if selling your house is a priority, take a tip from the farmers. Be realistic about what the market will bear and price accordingly.