In South Florida, we often run into that same difficulty. The seller knows his neighbor got $850,000 for his home back in 2006 and none of his immediate neighbors has sold since then. However, when I tell him his house is worth exactly 50% of what his neighbors received, he can't believe that this is possible.
To counteract this tendency, which I always expect in neighborhoods with low turnover, I bring sold listings with me --on paper-- that show the last 90 days of sales of similar subdivisions within a mile radius.. That way, the owner can see for himself, house by house, neighborhood, what reality is.
Sometimes, an owner will just decide to "wait until prices go up again." Most of the time, the owner goes into mild shock, but then emerges with a suggestion that we price slightly higher than market.
At that point, I know there is a possibility that he or she will be willing to price for the current market.
Marc Jablon, The Jablon Team
RE/MAX Complete Solutions