Seller Close – Resetting the Price Anchor Close
The single most difficult challenge that agents have faced since real estate prices have declined has been convincing sellers to reduce prices. Sellers who have been taught their whole lives that real estate prices always go up, have found it difficult to accept the fact that prices at the height of the real estate boom were unrealistic. The rapid appreciation in prices since 2005-2006 created a bubble that eventually burst causing a significant decline in prices.
Unfortunately, sellers find it difficult to disregard what they could have gotten had they sold at the height of the real estate boom. The highest price has become an anchor for them. It directly impacts their perception of what they should sell for. In a sellers mind, if their house was worth $500,000 during the boom years and is only worth $300,000 today, they struggle with the thought of losing $200,000 in profit they could have made.
What agents fail to recognize is that these sellers emotionally don’t acknowledge that loss until they accept the agents justification of the $300,000 market value. In other words, a seller can pretend that they still have the $200,000 in extra profit until they agree with the agent. Many sellers choose to stay in denial by ignoring an agents logical justification of value. We know that fear of loss is a very powerful motivator and must face the fact that a $200,000 loss is hard for anyone to swallow.
The most effective way for an agent to get a seller to come to terms with this loss is to create the risk of an even greater loss in the sellers mind. This can be done by resetting the price anchor.
In the above example, the seller is anchored to the $500,000 high value and is unwilling to reduce the price to $300,000 because they don’t want to lose $200,000. By using the $200,000 drop in value that has occurred in the last 4 years, an agent can show the seller a declining trend of $50,000 per year ($200,000/4years = $50,000). With no end in sight to serious economic issues like unemployment and the deficit, and a continued slump in the housing market, it is possible that prices could decline even further. If they were to continue to decline for another two years in the above example, the value of the home could drop another $50,000 x 2years for a total of another $100,000. If this were to happen, it would mean the seller now has a home worth $200,000. This is even less than the $300,000 they were unwilling to accept.
By introducing the possibility of the $200,000 value the seller becomes anchored to the $200,000 price which becomes more compelling than the old anchor of $500,000. Think about it, the seller who was concerned about losing $200,000 now stands to lose $300,000. The psychological impact of the new price focus or reset of the price anchor to $200,000 has created an even great fear.
One of the best ways to overcome a fear objection is to create an even greater fear.