Buying and selling real esate is about supply and demand. Everything else is just noise.

This is true of all things financial. And since homes are also investments, usually purchased with borrowed money, it certainly applies to real estate.

How does supply and demand work? Simply put, when homes offered for sale are plentiful they can take longer to sell. When homes on the market are more scarce, sales result more promptly and on more favorable terms (for sellers).

Houses by nature are illiquid, meaning, they have a significant dollar value, but they are cumbersome to convert into cash. But homes sell everyday. Why?

Shelter is a basic human need. And the supply is inherently limited. As Will Rogers once said regarding land: “God ain't makin' no more of it.”

But in the Chattanooga, Tennessee area there is still elbow room. There is still lots of undeveloped land. Yet, certain homes are consistently in very high demand. Which ones? Homes which are priced correctly.

It is very hard for a seller to see price objectively. But a seller must be objective in setting price in order to achieve a sale.

Take an extreme example—almost hyperbole. What if a seller had a three bedroom, two bath, two car garage home on a quiet street surrounded by homes which recently sold for about $100,000.

Now imagine that seller priced that home at $1. What would be the result? There would be insatiable demand. The seller would need to virtually beat buyers back with a stick. A $100,000 home for a $1? It does not take a genius to spot that deal.

But, to the other extreme. What if that same seller priced the home at $10,000,000? The result would be inexhaustible supply. The home would never sell. How could it? If every seller raised their price to such an extreme degree, home sales would go the way of the dinosaur.

Most sellers understand that example. It is so extreme it borders on comical. But, variations in price—up or down—have the same effect. That effect, though, is in miniature. It is less extreme. Less easy to spot. But it is present, in the form of homes which sell briskly, and those which languish on the market.

Note the three graphics below. 

The center home is priced right. It will sell, while at the same time yielding the maximum amount of proceeds for its owner.

The home on the left sells too. But the seller misses much in the way of profits.

The home on the right? You may as well cement the "For Sale" sign in the yard. It is going to be on the market for a very long time.

Which is your choice?

Well priced homes sell. They are always in demand.

But what is a well priced home? How does a seller and listing broker arrive at “the right price”? Click here for an in-depth look at price.