Adapted from “Why Your Selling Price May Be Too High,” first published in the Negotiation newsletter, October 2007.
Imagine that you are moving from one city to another and putting your home on the market. How would you determine the true value of the residence? Now imagine that you are in the market for the same residence rather than selling it. How would you determine its value? Do you think you would reach the same estimate regardless of whether you were the buyer or the seller?
According to basic economic principles, we should place the same value on an item whether we’re selling it, buying it, or merely window-shopping. Yet psychological research shows that sellers typically value their own possessions more highly than the possessions of others. In negotiation, that’s a problem if you need to make a sale.
Researchers have dubbed the tendency to overvalue our possessions—including items we have only owned briefly and haven’t had a chance to become attached to—the “endowment effect.” Contrary to rational economic theory, we seem to view almost anything as more valuable once it belongs to us. Why? Ownership, like any stroke of good fortune, is accompanied by the threat of loss relative to the status quo. This “loss aversion” can lead us to overvalue our assets and ask too much for them.
To put together a more rational and competitive package prior to your next sale, answer these questions as honestly and thoroughly as possible:
• “Would I want it if it weren’t mine?” Once you’ve made the difficult decision to part with a possession, imagine how you’d react if someone were pitching it to you. When you put yourself in a prospective buyer’s shoes, the item might not look as appealing.
• “How much is it really worth?” Improve your estimate of an item’s value by consulting an expert in the field, such as a financial adviser or an art, jewelry, antique, or real-estate appraiser.
• “What if it doesn’t sell?” Imagine what will happen if you are unable to make a sale after a month or a year passes. If that wouldn’t be a problem, go ahead and aim high. But if it would cause financial or other difficulties, rethink your goal.
• “What other value can I offer?” In most negotiations, price should not be the only issue on the table. If you can provide delivery options, payment plans, or an ongoing relationship to a potential buyer, you may be able to justify a higher-than-average price.