Often, a seller gets only one crack at each prospective buyer. The shopper who liked the home but was put off by a high price may find another home by the time the owner of the first one drops to a more realistic price.
On the other hand, the seller needs just one buyer. You could get lucky and find that some combination of features is so perfect for a given buyer that you'll get a premium price. Hoping for this can easily encourage a seller to be overly optimistic, though.
So how do you walk this tightrope?
Sellers are wise to do considerable research into prevailing home prices on sites such as Realtor.com, Trulia.com and Zillow.com. Before signing a contract with a real estate agent, have several look over the home and recommend an asking price. Once you get a good feel for the home's current value, be wary of asking more than 3% to 5% above that level.
After the house is listed, keep in constant contact with your agent, and make sure he or she is debriefing the agents for buyers to get a sense of what buyers are saying. You'll know pretty quickly if the consensus is that the price is too high, or if the home has a flaw you could remedy.
Also assess the costs of holding out. If the home is empty, you may be paying for heat, insurance, taxes and maintenance on two properties, eating away at the benefits of holding out for a high price. If you're still in the home, a delayed sale might interfere with your plans to buy another, which might be going up in price as you wait.
Finally, have a plan - a secret one. If the average home in your area takes three or four months to sell, think ahead of time about whether you'll cut your price after the first month or two. But don't tell your agent, who might signal to buyers that you're "willing to come down," to "consider any offer" or "to negotiate." Don't tell your agent anything you don't want your buyers to know.