Yes, you heard it – the market is smarter than you. And, for what it’s worth, it’s smarter than me too.
At school I learned the following:
The Law of Supply and Demand is the relationship between supply, demand and price. More
- Increased demand results in increased prices;
- Decreased demand results in decreased prices;
- Decreased supply increases prices;
- Increased supply decreases prices;
There are many buyers and sellers who think they know better and that they can beat the market. Here’s an important lesson worth learning about the market:
Market Value: The market determines how much a house is worth, not the seller, not the buyer and not the agent either. The point at which a seller and a buyer agree to exchange a house for a certain amount of money, is called market value.
Overpriced homes don’t sell – Under priced homes get multiple offers. That’s the market doing its
Some scenarios to consider
Scenario 1: Multiple Offers
- A seller sets an asking price of 800.000 Euro
- 8 offers are made
- Some of these offers are at, or below the asking price
- One or two of those buyers really want the home and made an offer above asking price, let’s say one of the offers is at 855.000
- Usually a couple offers hover around a particular number or two (supported by recent sales in the market). Let’s say those numbers are around 815.000 and 825.000
- The home sells for 855.000
Here’s what happened: There was low supply and high demand. Most buyers in this example felt the house was worth around 815.000, the laws of the market drove that price up. Good for the seller, bad for the buyers.
Scenario 2: The Overpriced Home
- A home is listed for 750.000 euro
- After a while, an offer for 715.000 euro comes in and is turned down by the Seller
- Two weeks later two more offers come in for 713.000 euro and 718.000 euro
If several offers come in around the same price, it’s a sign by the market that this is the true market value. Sellers who are motivated to sell will pay attention to this and adjust accordingly. Another option would be to take the home off the market.
Scenario 3: Cherry-Picking Buyers and Sellers
Some sellers pick comparable homes on the higher end to justify their asking price while ignoring some comparables at lower prices. Same can be said for buyers – they pick comparables on the lower end of the range.
Neither buyer nor seller are right in this case. It’s imperative to include the most recent and most similar homes in your comparisons.
How does the market deal with the cherry-pickers? The property will most likely stay on the market for a long time before an offer below asking price is accepted. As far as the cherry picking buyer goes, he probably makes offer after offer only to come up empty-handed and having to pay rent and watching home prices increase.
Hopefully, this information will help you put yourself in a better position to buy or sell by looking at the situation from the market’s perspective.