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Pricing Psychology October '07 Click on a link below for the entire article.
Success Tip Pricing Psychology  Today’s market conditions around the country range from robust to comatose. If your area is on the drowsy side of that chart, you’ve no doubt had to advise a seller that his or her listing price should be snipped and tucked a bit in order to look more attractive to discerning buyers. And if you proffered that advice, you might have seen your seller recoil in horror as if you were the Mad Price Slasher.Here are two reasons sellers cling to unrealistic asking prices while the market slumps all around them (three reasons, if you count unfairly blaming their listing agent for being an advertising-retentive slacker): Denial Reason #1: Most people tend to be unrealistically optimistic. Harvard College psychology professor Daniel Gilbert, in his book “Stumbling on Happiness,” cites studies indicating that most people are overly-optimistic about their futures. This, according to Gilbert, is our brain’s way of relieving us from anxieties about unpleasant outcomes. It’s a little bit like the man who fell off the roof of a 20-story building. As he whizzed by the 10th floor window, people heard him say, “So far, so good!” So when you present those carefully-chosen comparables, and well-documented market statistics, don’t expect some rational reaction like, “Oh, then we should lower our price, right?” It’s more likely to be, “Very interesting, but when are you going to increase your advertising and hold more open houses?” Denial Reason 2: “Loss-aversion.” People have been known to chase down a purse-snatcher or pickpocket to get back the $100 or so he ran off with. That could be classified as a risk of life in most cities. But that same victim would not likely risk his or her life to earn $100. That’s because most people are way more motivated to prevent a loss than to gain a gain. It’s the reason amateur investors hang onto a stock that has fallen into a tailspin, hoping the value decline will miraculously reverse. Astute investors accept the loss, and bail out. Be patient when your seller counters your professional price-adjustment suggestion by saying, “I can’t afford to lose any more money on this house.” You’ll be tempted to say, “You never had that money,” but bite your tongue. He thinks he did. Help your seller move through the denial stage. Counseling your seller client about pricing is not a one-shot process. Keep presenting the newest active and sold comps, make sure your clients have the latest market stats. Ask every week whether they are ready to make a “price adjustment.” If not, say fine and move on. But ask again next week; and the week after. Like a good doctor who relentlessly advises a patient to make healthy lifestyle changes, you should never give up on helping your clients make difficult, but realistic, pricing decisions. Back to Top Best Practices 6 Negative consequences of overpricing for Sellers
The preceding was an excerpt from our online course, “The Psychology of Pricing,” by James Tice. |