Price it Right!

Attracting a buyer for your home begins with pricing it correctly for the market. But oftentimes, that is easier said than done. Why? Well, putting a dollar value on a home involves a number of subjective judgments, not least of which is comparing it and its features to a number of nearby properties ("comparables"). And comparing our stuff to others’ stuff is fraught with bias.

Conveniently, economists have a name for this: the endowment effect, which states that people tend to value things they already own more highly than things they do not (yet) own. In the case of real estate, it means that you probably think your home is worth more than it is, just because it's YOUR home.

In a bubble market (like Miami or Las Vegas a few years ago), this effect is masked by rapidly rising prices, but in most markets (like Chicago now), there can be a definite impact.

Homeowners and their agents can easily overprice a home and consequently waste time and money until it is apparent that the price needs to be lowered to attract a buyer. I’m not sure how much a typical home overvaluation might be, but I can tell you I did it myself years ago (before I became a realtor) to the tune of about 8% of my bachelor pad’s final sale price. The consequence was 3 price drops and quite a delay in selling.

I learned my lesson the hard way, but you don’t have to. I’d be glad to help you determine the most appropriate asking price for your home. Just contact me at brian@altorealtychicago.com.

And if you’re interested in reading more about the endowment effect, check out Wikipedia or the Freakonomics blog!