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THE DALLAS HOUSING market has recently shown signs of slowing. In our townhome community, I’ve noticed that houses are sitting unsold for longer. Until recently, any place on the market for more than seven days was considered unusually long.
Two weeks ago, we became interested in buying a two bedroom, two bath townhome on our street as a rental property. It was listed at $375,000. Upon a closer look, however, we found the following:
Based on the condition and the expected repairs, we made an offer of $280,000, or $95,000 lower than the list price. Yes, that was a big difference. But considering all the repairs needed and the cooling housing market, we thought it fair. The seller countered with $359,000. We walked away.
It struck me that this was a classic example of anchoring bias—the inordinate influence of the first piece of information encountered. With a home sale, the initial price is typically seen as an anchoring point, whether that price is reasonable or not.
I suspect the owner set the selling price based on market conditions in early spring, and then failed to adjust the price despite sharply higher mortgage rates and a recent high cancellation rate for home-sale contracts. Even our own realtor thought our bid was too low. But I suspect she, too, was measuring our bid relative to the list price, not the house’s actual condition and value.
Anchoring bias typically occurs in situations where folks are dealing with numbers. But it can also occur with qualitative expectations. If children have good grades in elementary school, that anchors the parents’ expectations. Parents declare their child an “A student” and expect subsequent teachers to confirm.
Similarly, athletes who perform well at the junior level are designated forever stars. Donald Young, a U.S. tennis player, was phenomenal in junior tournaments but ranked only as high as 38th as a professional. That’s an incredible achievement—but it’s seen as disappointing compared to our expectations of Young, which are anchored on his early success.
Want to be happier with your achievements? Weigh the anchor of your expectations—and perhaps change it for another if that’s what the facts demand.
Denmark is often cited as the happiest country in the world … usually attributed to its high level of social equality and community spirit. My daughter lived there for a while and she thinks it’s because most have moderate expectations…just happy to be average. With the world’s expectation for Danes to be happy, I wonder if they now feel pressure to be so.
Anchoring bias sometimes works in favor of the “A” child, too. As an educator for many years, I know that it is all too easy to want to intuit, when grading, what a top student really wanted to say, not what they actually said. That is one reason that higher education has widely adopted grading rubrics to assess students objectively. In an ideal world, property would be evaluated based on a standard, nation-wide rubric prior to listing. Not only would the evaluation objectively assess property condition, but it would also list risk factors (susceptibility to flooding, landslides, earthquakes, etc).
Have you had a chance to follow up on the property to see the final sale price?