Throughout all facets of life, we recognize that the human mind is a powerful thing. We often see the mind do powerful things when emotion is involved. In the real estate world, these emotions play out in many different forms. One of the most common things we see is the endowment effect.
In a recent article in REALTOR Magazine, Harvard Psychologist Daniel Gilbert explained the psychological term, the endowment effect. The term means that once you are endowed with something or “own” it, its value increases to you. In the process of real estate, it is found that when someone selling a home looks at the value of the property they own and believe it is worth more simply because they own it. While I was unaware of the term before reading this article, it is something we as realtors deal with regularly. In fact, this process of thinking for homeowners is more commonly the rule rather than the exception.
At William Means Real Estate, our agents look at multiple processes to assess the value of a home. While home valuation has many arbitrary factors, there are also very scientific measures to consider as well. As the Sales Director and Broker-in-Charge of our I’On office, I commonly use multiple processes to determine a home’s value in conjunction with our agents, so there are two opinions and added discussion. This way, the client can visualize the way a home valuation was achieved and why. While the client always decides the price asked or offered for a home, we strive to provide them with the most information to make that decision.
The endowment effect is a very real factor for many homebuyers and sellers. However, when a real estate agent can show you the factual argument for home pricing, it enlightens the client. The understanding that occurs makes the process for buying and selling a home easier and understandable, allowing real estate agents to truly help their clients.
