The Anchoring Effect and Asking Price in Real Estate

sebfreyCommentary

Anchoring

There are a number of theories and philosophies when it comes to pricing real estate for sale. Most real estate agents will tell you that the best practice is to list a home for sale somewhere around what they feel is market value – or even just a bit under market value, to foment a bidding war. However, there’s a school of thought that suggests there’s a better way to get the highest price for your home, so in this article I will talk about the anchoring effect and asking price in real estate. Many home owners are uncomfortable with the idea of pricing their home competitively, that is to say, at or slightly below “market value.” There is real trepidation when it comes to trusting that the market is going to work its magic and deliver sufficient buyers to create a feeding frenzy that will be needed to boost the sale price of a home up over asking price. Additionally, some sellers fear that bidding wars turn off buyers and dissuade them from even making an offer in the first place. That is undoubtedly true, however the counter-argument to that is that the buyers who are put off by a bidding war are typically not the strongest, most-motivated buyers anyway. Instead of under-pricing or “fairly pricing” their homes, many sellers will choose to set a high price. Doing so, they believe, will give them “room to negotiate.” Beyond leaving “room to negotiate,” a high asking price also may work in the seller’s favor due to … Read More