I once heard a comedian tell a joke about a guy who was on the average was doing alright.  He had one foot in boiling water and one in a bucket of ice.  Both feet were kind of miserable, but on average he was fine.

I recently had a client come in to list his villa.  I was familiar with the complex; they are all the same floor plan and have similar views so the only thing that would determine the price would be condition.

There were four 2-bedrooms in his complex listed for sale; one at $475,000, one at $550,000, one at $565,000 and one at $572,000. 

My seller said he wanted to list his villa at $539,000 which was $1,000 below the average of these properties.

When I asked him why anyone would pay him $539,000 when there was one presently listed at $475,000 he replied that he was just working off averages. 

It does not work this way when listing property.  This is what we call listing off list which is a disaster waiting to happen.  Often times I would go to list a house and I would have a neighbor say something about their neighbors house being priced at $599,000 and she does not have any ceiling fans so I want to price mine at $619,000.  You have to consider that the neighbor’s house has been on the market for a year, she has not had any offers, she has had very few showings and she has 0% chance of selling the house.

It is probably much more effective to price off of what has actually sold.  In a declining market you cannot use averages because each sale is for somewhat less than the sale before.  In a rising market you don’t list off averages because each price is higher than the price before.

I’m sure there are a lot of businesses where averages work, but in real estate they don’t work going down and they don’t work going up.  The only time they might work is when market prices are totally stable.  I can’t remember the last time that happened.  Recent real estate is kind of like an elevator – it is either going up or down – never sideways.