Diagnosis Bias & Your Listing Price

As a real estate broker who specializes in listing luxury homes for sale in Marin County, California, one of my primary goals upon meeting with sellers is adequately explaining the risks associated with overpricing. Reading the book Sway, by Ori and Rom Brafman, something came into focus which applies directly to real estate.

Of course, everyone understands that the first few weeks (e.g, the first 21-30 days on the market) are considered "The Honeymoon Period." That is when all the buyers and their agents will come take a look at the new listing in the hope that is something they will want to buy (or from an agent's perspective, they hope it is a home they can sell).

If the price is right, new listings sell. Yet, oftentimes, it is difficult to accurately set a listing price that will elicit an offer. And once those first few weeks come and go, you can be sure that interest will wane.

While I know some sellers (and their agents) will say, "Heck , Kyle, the average marketing time here in (fill in the blank) is well over 100 days for luxury homes." And that's probably true. But if a home is on the market that long and sellers actually need to sell the home, there will have been price reductions and more will follow.

And this is where "Diagnosis Bias" sets in. Ultimately netting sellers less money than if they had priced their home correctly to begin with.

"Diagnosis Bias" is a phenomenon that arises when a mental characterization is made, which is then almost impossible to erase. In the example from Sway, a highly agitated mother brings her daughter to the emergency room. She is complaining of stomach pains. The doctors tell her its likely just gas and that she should go home and rest. It is suspected that the mom is over-reacting.

The next day, mom again brings in her daughter and now the doctors are convinced that the mom is a "frequent flyer" -- one whose overly dramatic and overly protective nature compels frequent visits to the emergency room. Again, the doctors tell the mom to take the girl home. The same things happens the next day. We all know what happened next--the girl ended up having a very serious problem and died. The doctors fell victim to "diagnosis bias."

Their confidence in their early assessment prevented them from seeing the real state of things. And this is what happens with buyers--they see a home that is overpriced and they will forever think of that home as "that overpriced home with the view," etc.

The bias is capable of being overcome, but it takes dramatic action (e.g., major price reductions) to get there.

So, the message here to sellers is this: prevent "Diagnosis Bias" by carefully and objectively pricing your home consistent with your current market conditions.