You’re probably asking yourself: what’s the endowment effect? Turns out a guy named Richard Thaler won the nobel prize for economics in 2017 for his work on this principle. He proved that humans (and primates, too!) have a strong tendency to over-value things they already own.
Take something simple, like a coffee mug. If you ask a group of people how much a coffee much is worth sitting on the shelf at Goodwill, they might tell you something around $2. But then if you ask them how much is that chipped, faded, and stained coffee mug in your own hand is worth, and they’ll tell you this one is worth $5. Hmmm.
Why do humans (and monkeys too – I haven’t forgotten the monkeys!) do this? Turns out, it’s a loss-avoidance mechanism. Humans and primates both have a fear of loss – and fear isn’t an emotional, it works at a much deeper level, because fear is what keeps you alive and the survival instinct is, as I’m sure you’ve hard, very, very strong.
So how does the endowment effect showing up in real estate pricing? We see a lot of over-priced homes with long days-on-market, that’s how! People are just biologically wired to over-value their homes. They can’t help it! But when you’re looking to sell your own home, be a master of your own destiny! Don’t fall victim to your biology. Price your home right from the get-go and you’ll have a faster, easier, and happier selling experience.