Sellers and Realtors disagree on pricing

A new survey from HomeGain suggests one of three things: Either home owners are unrealistic about what their homes are worth, or agents are too pessimistic about what homes will sell for, or some combination of the two.

The survey found that nearly 50% of homeowners think their houses should be priced 10% to 20% higher than their agents have recommended. Less than 20% of agents nationwide say that home buyers are telling them that homes on the market are priced fairly. Almost 60% of agents say potential buyers are telling them that home asking prices are too high.

So who's right? Of course most real estate agents have far more knowledge of market conditions than home sellers, who also may be emotionally attached to their homes or suffer under the power of the endowment effect. That is, studies have shown that people often want more for something they possess than they would pay for the same object that they don't possess.

On the other hand, real estate agents often have an incentive to push for listing a home at the lowest price possible: The lower the asking price, the quicker they can get it sold and move on to the next thing. The problem is that real estate commissions are structured in a way that the broker doesn't benefit nearly as much as the seller from an increase in price.

For instance, let's say that a home is listed with an agent for a 6% commission -- 2% will go to him, 2% to his broker, 2% to the buyer's agent and 2% to the buyer's agents broker.

If the home sells for $250,000, the listing agent will earn $5,000. If the homes sells for $275,000, he'll earn $5,300. That difference in commission may be too small for the agent to bother with showing the house 20 more times while it sits on the market. "You want to hold out for the best offer," economist Steven Levitt told ABC News. "Your agent wants to churn through the properties and make a quick sale. Levitt found that agents let their houses stay on the market longer when it's their own home.

So what's a home-seller to do? The best bet is to interview a handful of agents before choosing one, and ask each one what price they would list the house at. Don't succumb to wishful thinking and pick whichever one offers the highest price: Try to understand the reasoning behind the different price points, and go with the agent who knows what she or he is talking about.
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