skip to main content

Buying and Selling Homes

The Endowment Effect or Why won't my home sell??

11 years ago

I'm new to this forum so I'm not sure if this has been discussed before. This is an interesting article on Wikipedia: http://en.wikipedia.org/wiki/Endowment_effect

In behavioral economics, the endowment effect (also known as divestiture aversion) is the hypothesis that a person's willingness to accept (WTA) compensation for a good is greater than their willingness to pay (WTP) for it once their property right to it has been established. People will pay more to retain something they own than to obtain something owned by someone elseÃ¯Â¿Â½"even when there is no cause for attachment, or even if the item was only obtained minutes ago. This is due to the fact that once you own the item, forgoing it feels like a loss, and humans are loss-averse. The endowment effect contradicts the Coase theorem, and was described as inconsistent with standard economic theory which asserts that a person's willingness to pay (WTP) for a good should be equal to their willingness to accept (WTA) compensation to be deprived of the good, a hypothesis which underlies consumer theory and indifference curves.

Basically, it's the idea that we tend to overvalue that which we own (and let's face it, homes are a major financial investment for most home owners AND carry emotional attachment that others don't value when assessing the market price when they purchase a home.

I feel that it's valuable information every realtor and home seller should learn about, understand, and consider BEFORE pricing their home for sale.

Sort by:Oldest

Comments (5)

Tony2Toes
11 years ago
These are key principles taught in professional negotiation and sales courses.

In home sales, it's even MORE relevant for sellers that have invested heavy time/sweat equity in their properties. They labor and toil because they want to beautify the home to their personal standards, and put a "priceless" up charge on the TMV of the property. Many homes with long DOM values and no price drops fit into this category.

Basically, the seller deludes themselves into believing that there sweat equity is worth far more than reality.

Works the other way slightly as well. Buyers convince themselves that their budget should have material impact on the TMV of the property. It obviously has none in any specific case, although a population-wide economic downturn will.
kitykat
11 years ago
WOW... how totally timely! My home gets photographed today, with listing on Wed 5/1. In the last 2 weeks, homes in this neighborhood have been selling within the first 1-2 weeks. However, pricing, sans emotion, is a hurdle I needed to face.

I have found what helped me the most when detaching myself emotionally from this little cottage (that I have so improved and loved over the past 10 years) is studying the MINUTE details from posted photos of my competition.

These are all small, modest 'starter homes'. I made myself view these offerings as if I were considering them for myself, and compared similarities and differences to my home. Eye-opening, for certain! A hardwood floor is a hardwood floor, no matter the stain color. All ranges cook and fridges cool, DW clean, etc. Better, fancier, bells-and-whistles are nice, but... not at some premium price.

Newer roof, clean and uncluttered rooms, furnace/AC in good condition, good windows, updated kitchen and baths appealed to me. A finished basement, large shed outfitted as a workshop, huge kiddie play structure, or a water garden would be major negatives, for my personal needs.

So I stepped back, and mentally erased the personalized improvements to this house, and focused on what I would be willing to pay for the basics. It was a sobering experience... but so worthwhile. I came up with my dollar value for the house.

My agent came yesterday, having done a CMA prior to our meeting. After viewing the house, he decided he needed to re-evaluate his pricing opinion. His comment, "The house is a winner, very nice!" I have no doubt we will easily agree on the asking price.

The minute that sign appears in the front yard on Wednesday, this is no longer my home. It is merely a piece of property that I am offering up and leaving. My emotional attachment can be recalled in all the photos. The cottage will belong to another... I will have moved on.
Related Discussions
Why won't my blueberry bushes grow?
Q
Comments (15)
I haven't used Hollytone but many people do successfully. It's a lot safer than ammonium sulfate. The later is safe if dissolved first at a modest concentration. I got my fastest growth in pots by mixing 1 teaspoon per 2.5 gallons and applying once a week. In ground once a month should do. Small frequent doses are much safer than one large shot. Right now I'm mixing 1 ml per gallon which is, I think, a fair amount less than rate above. Where I've burned plants with ammonium sulfate is applying it dry at excessive rates and watering in. That can fry the roots. PS: A teaspoon is 5 ml. So rates above are 2 ml per gallon vs 1 ml per gallon. This post was edited by fruitnut on Wed, Jul 30, 14 at 12:00
...See More
why won't my buds open fully?
Q
Comments (2)
With blooms it is like Goldilocks...it's too hot,it's too cold, it's too dry,it's too wet,not enough sun,too much sun...all of these things can have an effect on different blooms in different ways. As for newer seedlings,they need several years,as a rule, to show their best bloom ability.
...See More
WHY ISN'T MY HOUSE SELLING
Q
Comments (33)
I just went back and had a look at the garage door. I absolutely disagree that it looks faded and blotchy but then I am a person who loves subtlety and things that blend, especially when it comes to garage doors and garages. So from the photo, I like the way it is. In fact, often I find that a garage dominates a house and this is something that I particularly dislike. A house is for people not for cars and when I feel that a car is somehow more important and the people are living with one, including its fumes, I look the other way. I do not feel that this garage dominates. And my gosh, what a clever idea to have a room above it and that facade. Really lovely.
...See More
Why won't my Zinnia grow straight/upright?
Q
Comments (20)
Hello Dale, I am not sure why this message string got flagged as updated, since your August 2, 2017 message is the last one, but since your message is the last one in the string, you are "due" for an answering comment. This comment from you and my response are copied from a message above. " And there's still the problem with the other plants. I only posted the photo of the one. " Well, there were three plants in your photo, but we could get a good view of only the one. And the photo was on its side somehow. Obviously you can't take or post any more pictures from your 2017 zinnia patch, but I copied this excerpt from your original picture, which did show this additional zinnia in the background. Click on this small inline photo to see the larger version. This zinnia also had its main stem terminated at the arrow, forcing side branches from that node. All side branches have to start out rather horizontally, and they naturally curve upward as they grow. Your zinnias may not have been mowed over by a lawn mower, but something terminated their main stems, and they responded normally to that damaging event. The curved stems you see in your picture above are normal growth in response to removal of the main growing point. We may never know what removed those growing points. ZM
...See More
brickeyee
11 years ago
Many FSBO sellers seem badly afflicted.
Tony2Toes
11 years ago
FSBO sellers, in general, are typically more self-assured that their perception TMV for their property is the right one or they wouldn't be FSBO'ing in the first place.

Entitlement isn't always the right word to use I think. Self-delusion sometimes comes into play as well.
palimpsest
11 years ago
This unit:

Is currently listed for significantly more than the final listing price of this unit, in the same complex (sale closed in January) They are both 2 BR 1 Ba

Of course many of the differences are cosmetic, but there was also a lot of underlying electrical and plumbing upgrades, and the cosmetics involved historic restoration.

Related Stories

SMALL SPACES Houzz TV: You Won’t Believe Everything This Tiny Loft Can Do

By Mitchell Parker

Looking for more floor space, a San Francisco couple hires architects to design a unit that includes beds, storage and workspace

REMODELING GUIDES You Won't Believe What These Homeowners Found in Their Walls

By Mitchell Parker

From the banal to the downright bizarre, these uncovered artifacts may get you wondering what may be hidden in your own home

HOME TECH 3 Kitchen Contraptions You Won’t Believe

Pizza hot from the printer, anyone? These cooking gadgets harness imagination and high tech — and have price tags to match

SMALL SPACES 10 Tiny Kitchens Whose Usefulness You Won't Believe

By Vanessa Brunner

Ingenious solutions from simple tricks to high design make this roundup of small kitchens an inspiring sight to see

FURNITURE 12 Sofa Colors That Won't Box You In

By Judith Taylor Designs

With any of these colors as a base, you can change your decor as often as you change your mind

WINDOW TREATMENTS Embellishing Tricks for Cost-Effective Custom Curtains

By Nicole White Designs Interiors LLC

Get curtains that look high end — even if you don't sew — with just a little trim here or a little banding there

SELLING YOUR HOUSE 5 Savvy Fixes to Help Your Home Sell

By Kristie Barnett, The Decorologist

Get the maximum return on your spruce-up dollars by putting your money in the areas buyers care most about

SELLING YOUR HOUSE The Latest Info on Renovating Your Home to Sell

By Laura Gaskill

Pro advice about where to put your remodeling dollars for success in selling your home

SELLING YOUR HOUSE A Moving Diary: Lessons From Selling My Home

By Laura Gaskill

After 79 days of home cleaning, staging and — at last — selling, a mom comes away with a top must-do for her next abode

SELLING YOUR HOUSE Help for Selling Your Home Faster — and Maybe for More

By Laura Gaskill

Prep your home properly before you put it on the market. Learn what tasks are worth the money and the best pros for the jobs

Sponsored

Structural Remodeling

Franklin County's Heavy Timber Specialists | Best of Houzz 2020!

More Discussions

Will this kitchen reno ideawork or will it just look and feel awkward?

8

This is a new one for RE listing

10

Concerns of buying 2br house (instead of 3 br)

4

Which shower pan would you choose with this marble-look wall tile?

4

Addition or move?

20