"Let's just price it a little bit higher so there's room for negotiation," Mrs. Homeowner said.
"You never know!" Mr. Homeowner agreed.
Mrs. Homeowner nodded. "We can always lower the price later!"
When I invest my time and my money into marketing a home, I want it to sell. Simply put, I don't get paid until the keys exchange hands. While the strategy Mr. and Mrs. Homeowner wanted to use is common, it's also a result of being grossly uninformed.
If you overprice your home, there will be no one to negotiate with. Buyers are educated - they can see, with the click of a mouse, all of the homes available in a neighborhood in their price range. And if your home isn't at least average in that pile, they won't even bother to come see it. So if you price your home a little high - even 2 or 3% higher than market value - no one will come to see it and therefore you won't have any buyers to negotiate with. Homes listed for $500,000 attracts buyers who want a $500,000 home, not buyers who want a $450,000 home. Homes listed for $500,000 also compete with the other homes that are offered for $500,000 - if your home is only worth $450,000, it will not compare well.
If you plan to reduce the price later, you're reducing the number of potential buyers that will see the home. Trying out a higher price for a few weeks sounds like a great idea, but experienced real estate professionals know that the longer a home sits on the market, the more buyers think there's "something wrong" and are less likely to make an offer. Take a look at this graph - it's easy to see that showings decreases pretty dramatically after the first week on the market.
Homes that are listed above market value will eventually sell if the homeowner reduces the asking price. But, the home will sell below the actual market value because of the perception that hte home is unsellable.