One of the issues with magic swords is that a "+1 sword" is a big pile of "huh, whatever". Guys, it's supposed to be MAGIC. Magic is supposed to be cool. But realistically, past 3rd level, no one cares about a poxy +1 sword. In story-telling terms, if not rules terms, the magic has gone out of them.
So let the crunch match the fluff.
Saying a sword is +n now merely indicates the degree of artisanship that went into making it. The most typical masterwork weapon will be a mere +1 sword. This is technically better than a SRD masterwork sword (which only grants +1 to attack rolls, instead of to both attack and damage rolls). However, that difference always was trivial in the grand scheme of things, and easily forgotten in the heat of the moment.
Next, the number of magical properties a weapon can have is dictated by the degree of masterworkmanship in the weapon. A +1 sword can have a single magical power. A +2 sword could have two, and so on. This restores a reason for +5 swords to even exist.
The price of masterwork weapons needs to be toned down though. In core, no one would ever choose to have more than +1 on their sword (the minimum required to have any real magical effects on the weapon), because a +2 is not three times better than +1, and this follows even less so for +3 or more. Exact levels of pricing are TBD of course, but 300 x (masterwork level squared) seems about right, so a +5 sword will cost 7500 gp.
Finally, some magical properties should be possible as non-magical powers granted by exceptionally talented craftsmen. Vorpal, keen, or wounding, for example.
And any time a magic weapon appears in the game, let it not merely be magic, but MAGIC. It should come with a history, a back story, and maybe a previous owner or two desperate to have it back, or a ghost keen to ensure the weapon is used for a specific purpose. Or an important figure in the party's near future who recognises the weapon as the one who slew his father, and the party must die for bearing that sword. You know the drill.
Ashtagon's homebrew rules set.
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