That is not a typo.  Yes, a ONE HUNDRED THOUSAND Dollar reduction, and after only 17 days on the market.  But I don’t care if the property had been on the market for a year, a $100,000 price reduction on a house worth less than $1M is a miscarriage of the free market.  Or maybe it is the free market:  free to try to rip off some unsuspecting buyer.

The economic theory of Rational Expectations says that people do not make systematic errors in predicting the future and that any deviations are the result of mistakes and ignorance.  I won’t call the seller ignorant, because that would be rude, but he certainly made a big mistake that will cost him in the sale of his house.

The reason is that Real Estate Pricing Theory shows that most of your potential buyers view the property in the first few weeks.  That is because most of the qualified buyers in the market have seen everything else and didn’t like it.  Now they are waiting on the sidelines for new listings they might like to become available.  When they do, the buyers rush out to check them out.  After a few weeks, these pent up buyers have all seen your house and now the only people to view it are people new to the market.  These people may just be starting their search, may not need to buy as urgently, may not be financially qualified yet or may still need to sell a home.

Back to our seller who overpriced his home by $100,000.  Admittedly, this seller represents an extreme case of overpricing, but his mistake first caused him to miss the initial flood of buyers:  The people who were most likely to ultimatley buy his home never looked at it when it first hit the market.  His proper audience may see it once it was reduced, but they may not, too.  A new listing has more impact on the market than a price reduction.

However, the larger damage in my opinion is that this buyer has trashed any good will that potentially could have existed between buyer and seller in negotiating the sale.  The seller has shown that he is not trustworthy.  Buyers who do look at the property will say out loud:  “What was this guy thinking?”  And to themselves they will be thinking that the seller may still be trying to rip them off.

The funny thing is that the house is still probably overpriced and will ultimately sell for about $20k less than currently listed…when it does finally sell.