I just finished reading a book called "Predictably Irrational", by Don Ariely. In it, the insightful Duke Univerysity professor unveils the hidden, irrational forces that shape our daily decision making. It's a great read
There are a few interesting case studies in this book that can be applied to real estate marketing and negotiations. Specifically, Chapter Seven (The High Price of Ownership) covers what is commonly referred to as "The "endowment effect". Simply put, "the endowment effect" means that when we own something, we begin to value it more than other people do.
The High Price of Real Estate Ownership
There are three fundamental "quirks" of human nature as it applies to real estate:
- We fall in love with what we already have. Meaning, as sellers, we always place a higher value on our house than our potential buyer does simply because we've lived it in longer and we love it more than they do.
- We focus on what we might lose, rather than what we might gain. This is more true today than ever before. In today's real estate as Seller's we're lucky to get an offer much less a great offer within a few percentage points of our asking price. I've seen more Seller's lose a deal over a couple thousand dollars than ever before in my career. Why? Because their focus is on the loss of imaginary equity rather than the gain of a profitable sale.
- When thinking about selling something, we think about all the things you'll miss, rather than the hassles of ownership
- We assume that other people will see the transaction from the same perspective as we do
Peculiarities of real esate ownership:
- The more work you put into something, the more ownership you begin to feel for it. This is why your first home - that "fixer upper" you spent 3 years of non-stop weekend warrior-ing to make live-able - will always be your favorite home and the most difficult to part with.
- We can begin to feel ownership even before we own something. This is the one advantage that sellers have in any marketplace and why staging to appeal to the emotion of buyers is so important.
So...how do you counteract these natural, human tendencies? In real estate we must view all transactions as a non-owner. This can help bring the hidden, irrational tendencies to the surface so that we can deal with them in a more rational and calculated way.
Remember...selling real estate is simple.
Simple, but not easy.
We need to stay up on the current market and price it to get interest from buyers away from other competing homes.
We need to stage it so buyers get the maximum emotional impact when they walk through the front door. This is important because buyers buy not for analytical reasons, but because of how they feel in the home.
We need to market it to get qualified people through the front door.
Follow this simple 3 step process and I assure you that your decisions will quicly become Predicatably Rational :)