Who Sets a Home’s Value?

Q:  Marsha, I’m ready to put my home on the market. I had my Realtor do a market analysis of recent comparable sales. She put the value between $1,100,000 and $1,200,000. I want to put the home on the market for $1,350,000 and see what happens. My agent says to put the home on the market for $1,050,000 and the market will set the price. What does that mean? Why wouldn’t I want to go for the highest price possible?

A:  Good question. It may seem counterintuitive, but I agree with your Realtor. Neither the owner nor the Realtor sets value; the market does that. Your home will sell for what someone in the market is willing to pay for it. For example, you may have recently put $75,000 worth of improvements into your home, and you want to price your home accordingly. However, if buyers don’t perceive the value in these improvements, you won’t get the higher price no matter how well your Realtor markets the home.

Think of your home as a commodity such as gold. Gold is bought and sold every day for the gold market’s perceived value. What if I purchased an ounce of gold two years ago for $2,000 and now I want my gold broker to sell my ounce of gold for $2,500? I cleaned my gold and polished it to perfection. It’s gorgeous. My broker tells me that it’s great, but right now, gold is selling for $1,870 an ounce. I demand he produce a beautiful glossy brochure with an expensive aerial photo of my gleaming gold. I want my gold ounce on all the gold websites. He must host a gold-broker open house and serve a buffet lunch to the other gold brokers. However, no matter what my broker does to market my gold ounce, the market will never pay a dime more than its perceived value. The same is true with your home.