I have seen some really smart people overprice their homes and it’s not because they didn’t understand the market.
It’s because they are human.
There’s actually a name for this. It’s called the Endowment Effect.
The Endowment Effect is one of the most studied concepts in behavioral economics, and it shows up in real estate listings every single day. It describes our tendency to assign a higher value to something simply because we own it. That finding was reinforced by a landmark 1991 study published in the Journal of Economic Perspectives, which found that ownership alone can increase the value we place on something.
The National Association of Realtors further researched this and found that the Endowment Effect is particularly pronounced in real estate because homes are both financial assets and deeply personal possessions. Whether you’re buying or selling, you may encounter the Endowment Effect without even realizing it. In fact, when selling, you may have experienced it yourself.
There’s an old saying in real estate: “Sometimes it’s better to be the second or third listing agent.” The reason behind that saying is simple. When a seller becomes attached to a price and the property doesn’t sell, it’s often the agent—not the price—that gets blamed. In many cases, the agent recommended a lower price from the beginning, but the seller wasn’t ready to hear it. The property sits on the market, and eventually the agent gets replaced.
The seller isn’t ignoring the data because they’re not smart. They’re often reacting emotionally without realizing it.
The Endowment Effect is closely tied to something called loss aversion. In simple terms, people often feel the pain of not getting their desired price more strongly than they feel the benefit of accomplishing the goal of selling the property. The seller is thinking, “If I sell for less than I think it’s worth, I’m losing money.” Even when the market is simply revealing what buyers are willing to pay. Research has shown that loss aversion plays a significant role in seller behavior and pricing decisions.
The reason smart people overprice their property isn’t because they’re unreasonable.
It’s because they’re human.
If you think this is interesting, wait until you see how it actually plays out once a home hits the market. I’ll cover that in my next video!
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Aloha!
Lynda Gill RS Lic. 63088
Hawai’i Life Real Estate Brokers 808.346.0056
LyndaGill@HawaiiLife.com
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