The Endowment Effect or Why won't my home sell??
I'm new to this forum so I'm not sure if this has been discussed before. This is an interesting article on Wikipedia: http://en.wikipedia.org/wiki/Endowment_effect
In behavioral economics, the endowment effect (also known as divestiture aversion) is the hypothesis that a person's willingness to accept (WTA) compensation for a good is greater than their willingness to pay (WTP) for it once their property right to it has been established. People will pay more to retain something they own than to obtain something owned by someone elseÃ¯Â¿Â½"even when there is no cause for attachment, or even if the item was only obtained minutes ago. This is due to the fact that once you own the item, forgoing it feels like a loss, and humans are loss-averse. The endowment effect contradicts the Coase theorem, and was described as inconsistent with standard economic theory which asserts that a person's willingness to pay (WTP) for a good should be equal to their willingness to accept (WTA) compensation to be deprived of the good, a hypothesis which underlies consumer theory and indifference curves.
Basically, it's the idea that we tend to overvalue that which we own (and let's face it, homes are a major financial investment for most home owners AND carry emotional attachment that others don't value when assessing the market price when they purchase a home.
I feel that it's valuable information every realtor and home seller should learn about, understand, and consider BEFORE pricing their home for sale.