The Endowment Effect Is Making Sellers Overprice Their Homes—and Realtors Need to Stop Participating
Written by Devone Richard
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I’m Rewriting This Because the Problem Has Gotten Worse
I wrote about the endowment effect in real estate before because I kept seeing homeowners overvalue their properties simply because they owned them.
I’m writing about it again because the problem has gotten worse.
Some sellers aren’t pricing homes anymore.
They’re making up numbers.
And too many Realtors are helping them do it.
The seller says:
“I want $1.5 million.”
Why?
“Because that’s what I think it’s worth.”
That’s not market value.
“I need to walk away with $500,000.”
That’s not market value either.
The buyer isn’t responsible for your financial plans.
YOUR MEMORIES ARE PRICELESS—TO YOU
The endowment effect is simple: people tend to value something more because they own it.
And real estate may be the perfect example.
You raised your children there.
You remodeled the kitchen.
You celebrated Christmas there.
You watched your family grow there.
Those memories may be priceless.
But they’re priceless to you.
The buyer isn’t purchasing your memories.
They’re purchasing square footage, condition, location, lot size, upgrades and comparable value.
Emotion can make your home special.
It can’t make it worth another $300,000.
I’VE SEEN HOW FAR THIS CAN GO
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I once dealt with a Los Angeles seller who believed her property was worth approximately $1.4 million.
My analysis put it around $840,000.
The property eventually sold for approximately $837,000.
Read those numbers again.
Seller: $1,400,000
Market analysis: $840,000
Actual sale: $837,000
She wasn’t $20,000 high.
She wasn’t $50,000 high.
She was more than half a million dollars disconnected from the market.
That’s what happens when emotional value gets confused with market value.
THE EXCUSES HAVE TO STOP
“But I need $1.2 million.”
The market doesn’t care what you need.
“But I spent $200,000 remodeling.”
The buyer didn’t choose your $40,000 kitchen.
Cost doesn’t automatically equal value.
“But my neighbor is listed for $1.5 million.”
Did it sell?
If the answer is no, your neighbor’s asking price proves absolutely nothing.
An active listing tells us what another seller wants.
A closed sale tells us what a buyer actually paid.
There’s a huge difference.
AND REALTORS NEED TO STOP PARTICIPATING IN THIS MADNESS
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Now let’s talk about us.
Because sellers aren’t creating this problem alone.
The comps support $950,000.
The seller wants $1.25 million.
The Realtor knows it’s ridiculous.
But another agent is interviewing tomorrow.
So suddenly:
“Let’s start at $1.25 million and see what happens.”
Stop it.
You don’t believe the house is worth $1.25 million.
You want the listing.
That’s called buying the listing.
Tell the seller the biggest number.
Get the signature.
Put the sign in the yard.
Wait 30 days.
Then suddenly:
“The market is telling us we need a price adjustment.”
Give me a break.
You knew that before you took the listing.
You weren’t advising.
You were afraid another Realtor would get the business.
SOMETIMES YOUR JOB IS TO LOSE THE LISTING
This is something Realtors need to understand.
Every listing isn’t worth having.
If the seller wants $1.4 million and credible market evidence says $950,000…
Tell them.
If they don’t like it…
Tell them again.
And if they insist you list at a price you can’t professionally defend…
Walk away.
Another Realtor may take it.
Let them.
Your reputation should be worth more than having another sign in somebody’s yard.
I’d rather lose a listing today because I told you the truth than spend six months helping you lie to yourself.
That’s what being an advisor means.
OVERPRICING DOESN’T MAKE YOU A TOUGH NEGOTIATOR
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Sellers love saying:
“Let’s start high. We can always come down.”
Yes.
And while you’re coming down, buyers may be buying somebody else’s house.
The listing sits.
Then comes the first reduction.
Then another.
Buyers start asking:
“What’s wrong with it?”
Maybe nothing was wrong with the house.
The price was wrong.
Even worse, your overpriced property can make the properly priced house down the street look like a bargain.
Congratulations.
You just helped your neighbor sell their house.
FINAL THOUGHT
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Sellers, I want you to get every damn dollar your property is worth.
A good Realtor should fight for that.
But maximizing value and inventing value are two completely different things.
And Realtors…
We need to stop participating in the madness.
Stop buying listings.
Stop agreeing with prices you know you can’t defend.
Stop telling sellers what they want to hear because you’re afraid somebody else will get the listing.
If you’re going to call yourself an advisor…
Advise.
Sometimes that means saying:
“I understand what you want, but the market doesn’t support it.”
You might lose the listing.
So what?
Because eventually the market will tell that seller exactly what you were afraid to tell them.
Your house isn’t worth what you feel it’s worth.
It’s worth what the market will pay.
The seller doesn’t get the final vote.
The Realtor doesn’t get the final vote.
The market does.
And eventually…
The market always wins.
Written by Devone Richard
Broker/Owner | OYT Real Estate
California Broker #01857383
Nevada Broker #1002115
📞 626-500-1212 | 702-941-0202
🌐 OYTRealEstate.com