Frederick Peters, President of Warburg Realty,
explains how the endowment effect can cloud the judgment of even the savviest buyer or seller:
WASHINGTON, D.C. – March 4, 2014 – (RealEstateRama) — Are we worth it? There have always been buyers and sellers who want to go it alone. They are sure that they can save money by not paying a commission. In my experience the reality is somewhat different. Whether as buyers or as sellers, consumers are rarely their own best advocates in a negotiation. Buyers usually pay less, and sellers get more, when they have a knowledgeable real estate agent representing them.
Since I am an agent, perhaps I am not the most credible witness. Likewise, when the National Association of Realtors, based on surveys of multiple homeowners, says that sellers with realtors tend to sell for up to 10% more than For Sale By Owners, perhaps they too have a particular perspective to promote. But what of that phenomenon known to behavioral scientists as the “endowment effect”? The endowment effect posits that people ascribe more value to what THEY own than they do to a similar possession which belongs to another. In other words, unrepresented sellers tend to think their properties are worth too much, and unrepresented buyers tend to think the properties they view are worth too little. This leads to problems on both ends.
People rarely negotiate effectively on their own behalf. This is particularly true when the commodity being sold or purchased is something as emotionally resonant as a home. Nowadays many buyers believe that they can make themselves a better deal if they pursue a purchase on their own. Using the Internet, they figure, they can find whatever listings they need. And indeed they can. But to succeed at BUYING one of these listings is another matter.
Most sellers are represented by an agent. What buyers frequently do not fully understand (in spite of signing the required NY State disclosure document) is that the seller’s agent represents the seller, not them. If the seller’s agent has agreed to take a lower commission when there is no buyer’s agent in the deal, the seller expects to put any money saved into his own pocket, not the buyer’s. And his agent is there to help him do just that. In addition, if there are multiple bids buyers do not have the ability to analyze value and bid strategically the way an agent, who has done this multiple times, can guide them to do. Like any professionals we have our tricks to make it that much more likely that our buyer will beat the competition.
Overall, pursuing a real estate purchase or sale without an agent in the New York marketplace seriously disadvantages the prospective buyer or seller. Agents have deep experience about the buildings and the overall marketplace which it is impossible for a lay person to possess. We can add analytics and rationality to an often emotional process. We have a sense of value honed by countless transactions. We can help sellers maximize their return, and buyers to get what they want at a price within market parameters.
I have heard often over the years that real estate agents are going to go the way of travel agents. I have heard often that technology, as it becomes more and more sophisticated, will disintermediate the agent as a crucial component in our marketplace. I don’t see it. This is a boots-on-the-ground business. The purchases are too big, too resonant, and too complex for most people NOT to use an expert. And for those who want to do it themselves…the odds (and the gains) still stand against them.
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About Warburg Realty
arburg Realty® is one of Manhattan’s leading luxury residential real estate firms, founded in 1896 by Albert B. Ashforth. The company has a long-standing tradition of extraordinary service that has kept it at the forefront of New York real estate for over 100 years. The firm’s 125 brokers are strategically located throughout Manhattan to guarantee every Warburg client the quickest access to New York’s finest properties and purchasers. Warburg recently opened its new 7,000-square-foot flagship location at 654 Madison Avenue, also housing its state-of-the-art Warburg University training facility. For more information, please visit www.warburgrealty.com.
