It's often thought that a home (or anything else for that matter) is worth what someONE will pay for it. Well, there is some truth to that... if you're willing to wait for that ONE buyer and that buyer is paying 100% cash. In real estate, "worth" or "value" is determined on a broader scale and much of the reason for that is homes are often financed - meaning they're being purchased with someone else's money and that person or entity wants to be reassured that they not unknowingly lending more than the collateral (the home) is worth in case is needs to be liquidated to recover the borrowed funds. The best way to determine the market value of real estate is through historical data that shows a track record of how buyers valued similar (or comparable) properties. The word "comp" is often used much more loosely than it's actual definition. A "comp" is a property that extremely similar to the subject property, and where differences occur there have been financial adjustments to make them similar. This is done through a formal appraisal process and often during a comparative market analysis. There can also be adjustments to the determined value based on how the market is trending. To determine the value of a property, research is done within databases (usually the local MLS) to discover the most similar properties (including location) that have sold in the recent past followed by making financial adjustments for the differences.
Can I (the seller) set my price?
Sellers always set the price they want to list their home for - hopefully after appreciating the counsel of their real estate professional. Listing for a price and selling for that price are not always the same thing though, so it's wise to list a property for the genuine value rather than attempting to shoot for the stars. A careful look at past sales of comparable properties (not just properties nearby) in combination with market conditions will allow for calculating a projected value for the home being sold.
Should I price high to allow for negotiations?
Sellers often tend to have emotional connections to their homes which causes them to over-price, so if a seller wishes to price highly on top of what may already be an inflated price the seller could be doing themselves a disservice. It's always best to price a home based on the factual information provided by historical sales combined with the current market conditions. Pricing too highly may cost the seller exposure of the home by discouraging buyers from even coming to view the home. Pricing appropriately is justified by research and will bring the most applicable buyers for the home.
The summary to the question about how to price a home is complex and does not have a one-size-fits-all answer, but with proper research in historical data combined with an analysis of the current market conditions, proper pricing is attainable to net the seller the most without the listing becoming stale.