The house is ready....are you?

According to wikipidia ‘The endowment effect is the hypothesis that a person’s willingness to accept compensation for a good is greater than their willing to pay for it once their property right has been established.’ In the world of real estate this means we all think our home is worth more than it really is.

Given that I have been selling real estate for well over a decade, I expected that I would be immune to this phenomenon. However, as the last coat of paint is rolled onto the walls of my own home, I find myself day dreaming at what the property may now be worth (despite the fact it was bought at the height of the boom and our original renovation budget has doubled).

When it comes to our homes, the endowment effect costs average Australians millions of dollars a year in squandered opportunities. Our homes are normally our biggest assets and we are emotionally attached to them. It’s impossible to be objective about the market value of a place where you watch your children take their first steps or where you bowled Dad out in that legendary game of back yard cricket.

Combine this with a market where more and more real estate agents than ever are competing for less and less sales, and you have a recipe for disaster.

Most people call in three agents and ask one simple question: ‘what is it worth?’ Knowing their answer will affect their chance of getting the listing, the agents normally give the owners an ‘optimistic assessment’, ham up how many perfect buyers they have on their books, and before the house even hits the market they’ve painted the scene for a fever pitch auction.

At this stage most people go on the market and their ability to recognize a good offer is all but gone – and who can blame them? But the worst is yet to come…

Your property is likely to be worth the most the first day it is put on the market. The best buyers spot it quickly and turn up immediately – these buyers are ready and if it’s what they are looking for, they will pounce. As the seller, you are in a very strong negotiating position – you own the product and it’s brand new to the market.

This is where the disaster normally unfolds – the overconfident seller meets the best buyers in the market and rejects their early offers. The expectation is that next week there will be even more but in most cases the next week there are less. Ask friends and you will find this happens all the time.

The greatest challenge that home sellers across the globe face is finding out how much their beloved home is worth before putting it on the public market.

So how do you find out? Either call an independent valuer before you select an agent, or when interviewing agents ask them to propose a sliding scale on their commission – going from best case to worst case.

A sliding scale will reveal to you where the agent really thinks the house will sell and this is exactly what you need to know before you start.