Adapted from “Trying to Make a Sale? Avoid These Common Pitfalls,” first published in the Negotiation newsletter, April 2010.
Why is it that even in sluggish markets, some homes are plucked off the real estate listings within days or weeks, and others sit for months, even years? Location and curb appeal have something to do with it, of course, but there’s another factor, one that sellers can avoid: the tendency to overvalue their property. Ignoring their real estate agents’ valuations, some sellers insist on asking for at least what they originally paid for the property, and often much more.
At least two common psychological phenomena explain the tendency to overvalue our possessions, according to Harvard Business School professor Max H. Bazerman. First, there’s the endowment effect, or the tendency to overvalue just about anything we own, no matter how trivial. One famous study led by Nobel laureate Daniel Kahneman found that students given nondescript coffee mugs set much higher selling prices for the mugs than students playing the role of buyer were willing to pay.
Second, emotional attachment to sacred possessions often causes sellers to price items beyond their market value. According to this sacredness effect, the fonder the memories you attach to an object, the more valuable you’ll consider it to be. Lacking this attachment, most buyers will value the item at a much lower—and more rational—price.
To avoid overvaluing your possessions, seek out appraisals of their worth from third-party experts such as real estate agents, jewelry appraisers, or financial experts. Lest you discount these experts’ informed opinions, Bazerman advises you to imagine how you will feel in several months or a year if your item fails to sell. By focusing on the future, you may be able to look at your possession more rationally.