The Effects of Supply and Demand

The Effects of Supply and Demand

The free enterprise system is alive and well in real estate. Homes may be bought and sold at will with few, if any, governmental restrictions. Sellers may ask any price they wish, and buyers may offer whatever price they are willing to pay. Asking too much for a home is the prerogative of sellers, just as offering too little is a legitimate choice of buyers. Nevertheless, a sale takes place only when the buyer and seller reach a price level acceptable to both. That is the way a free market economy works. The final price, called "fair market value", is defined as "that price which a buyer is willing to pay, and at which a seller is willing to sell, both parties being knowledgeable about the property, and neither party being under any time pressure to act."

Real estate is highly marketable, meaning that there is always a ready supply of both buyers and sellers. Buyers can choose from a wide selection of similar homes, while sellers have free access to all available buyers. Because price must be agreed upon before a sale can take place, there are three reasons for pricing a home fairly from the beginning: A home priced at "fair market value" is more likely to sell at full price. Buyers compare the features and amenities offered by similar homes. They are likely to recognize a fairly priced home, without feeling they must bargain to receive fair value. An overpriced home helps to sell the competition. Buyers will compare the overpriced home with other similar homes, and then buy one of the other homes. Even if a buyer agrees to pay an inflated price, mortgage rejections can occur when a home does not appraise for the purchase price.

Selling your home? Set the price at "fair market value", and then watch buyers compete to purchase it.