Today’s real estate market already suffers from having fewer sales to use when evaluating other properties. We’ve seen how some buyers, particularly those using Big Cash are paying prices that are hard to justify using traditional methods. As a result, the comps are more suspicious than ever as an accurate reflection of real value.
Now this article mentions the anchoring concept, and how the list price influences an evaluation. Hat tip to reader JB who sent this in:
Real-estate agents sometimes have outsized confidence in their ability to “price” homes that are put on the market, or to assess whether a price is too high or too low. In his great book “The Two-Headed Quarter: How to see through deceptive numbers,” Loyola professor Joseph Ganem described a study which proved that.
Real-estate agents were asked to appraise a home based on a 10-page packet of information where the only variance was the list price. When it was $119,000, the average appraisal was $114,000. When the list price was $149,000, the average appraisal was $128,700. In other words, simply by changing the first price suggestion made agents raise their perceived value of a home by $35,000.
Worse yet, the agents were blissfully unaware of the influence the list price had on their appraisal.
“Only 10 percent of the agents mentioned listing price as one of their top three considerations,” Ganem writes. “It is interesting that anchoring effects influence experts without their being aware of, or at the very least, willing to admit the influence.”
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