“Real Estate Confessions 1” #IkeaEffect #OverValuation #BlindLove

I had the privilege of working with plenty of real estate agents.  Many with whom have had years of experience working in the field.  Like any field, you have your own set of obstacles and trials that you must overcome in order to succeed.  Here is a story of one of those obstacles.

“Here’s my problem.  I’m a real estate agent.  I’m trying to sell this house.  I tell the owners that we need a new fresh paint job.  The existing color will alienate about half of our potential buyers.  The homeowners don’t want to hear it.  They love their precious color scheme.  They’d rather lose potential buyers, then have to apply a new fresh coat of paint.  They’re not cheap.  They can definitely afford it.  Rather, they’re stubborn.  They’re fixated on the idea that their home is perfect the way it is.  How could it be any other way, since they are the ones who came up with the color scheme.  It drives me nuts.  The homeowners are asking me to sell their home, yet they are making it more difficult than it should be.”

After hearing this story, it made me think of a book I recently read called “The Upside of Irrationality:  The Unexpected Benefits of Defying Logic at Work and at Home” by Dan Ariely.  In his book, he mentions the IKEA Effect which “is a cognitive bias that occurs when consumers place a disproportionately high value on products they partially created.” (wikipedia)  What this translates to in layman terms is that if you helped create something, a part of you is infused into that something and when asked to evaluate it, you will be over-evaluate it.

Here is an example from the book:

  • … let’s say you’re visiting your Aunt Eva. The walls of her house are decorated with a lot of homemade art: framed drawings of oddly shaped fruit resting next to a bowl, half-hearted watercolors of trees by a lake, something resembling a fuzzy human shape, and so on. When you look at this aesthetically challenged artwork, you wonder why your aunt would hang it on her wall. On closer inspection, you notice that the fancy signature at the bottom of the paintings is Aunt Eva’s. All of a sudden it is clear to you that Aunt Eva doesn’t merely have bizarre taste; rather, she is blinded by the appeal of her own creation. “Oh, my!” you say loudly in her direction. “This is lovely. Did you paint this yourself? It’s so, um . . . intricate!”

If this happened to you while visiting a relative’s home, your gut reaction would be “Wow this is really awful.  Why would someone hang this on their wall?”  Then you realize that these paintings were created by the homeowner, therefore it makes sense that they would put so much value on something so distasteful.  You conclude that the love they have for their own work blinds them from seeing what you actually see.  They are blinded by love.

The IKEA effect applies to the homeowners in the real estate agent’s story from above.  The homeowners biasedly judge that their home is already perfect.  Since they helped with the interior design, a part of themselves is also invested into home.  If the homeowners admit that their home needs a fresh paint job, in a way they would also be admitting that they did a poor job with the interior design.  That is why it was extremely difficult for the real estate agent to convince the homeowners to do what is in everyone’s best interest which is re-paint the house.

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