Anchoring to Manage Expectations
Anchoring is a type of cognitive bias, one that is used by marketers a lot. When you see something on sale with the original price crossed off, but still visible, your brain locks in (anchors) to the deal you’d be getting. Likewise, if you’re told a meeting will last an hour but has no end in sight 90 minutes in, you’d be more annoyed than if you’d planned for a 90 minute meeting. That’s not just because it’s taken longer than expected, if you expected a 90 minute presentation that only lasted an hour you may feel like you didn’t get as much out of it as expected. The cognitive bias aspect is that we tend to rely too heavily on the first piece of information we receive.
Humans latch on to expectations and carry them throughout an experience. Managing expectations is tremendously important in every kind of relationship, but in real estate sales it can make or break your client’s experience and thereby your business. For example, you may push a home’s value higher to secure a listing, or you may be conservative in valuation so the sellers are pleasantly surprised with the magic you worked. If you underdeliver with a colleague they’ll remember you didn’t perform as promised and may not be eager to work with you again. Buyers need to have a firm understanding of what they can expect to get for their budget, or what it will cost to buy the home of their dreams. Saying the wrong thing in any of these situations can cost you deals, referrals, and a good night’s rest, all of which cast ripples throughout your life. Wouldn’t you rather anchor expectations to what will make your business thrive and your nights more restful?
Using anchoring as a technique early in the process will make the later steps easier for everyone involved. For example, when you sit down with a new buyer client and the market is hot and highly competitive you know the average percentage over asking they’ll need to offer to be successful. Using the San Francisco Bay Area market, that number can be anywhere from 15-70%, which is quite a spread. Our average tends to be in the 25-35% range. It would be more encouraging for a buyer to hear that they should plan to offer 15-20% over asking, but you’d all be better off if you tell them 25-30%, or, if their desired home or neighborhood is particularly competitive, 35-40%. Though it may be a difficult pill for them to swallow, especially if they’re just learning about teaser pricing strategies, being upfront at the beginning gives them time to mentally (and financially) prepare for what’s really in their future. If you undersell how competitive they’ll need to be, it will be harder to get them to write a strong enough offer to be successful. If you oversell how much they’ll have to spend, then you’ll look like a magician for either getting their first offer accepted, or helping them save a few thousand bucks. This puts a lot of importance on the first meetings with clients, and rightfully so. You are the expert and your clients are looking to you for realistic guidance. Overvaluing a property to get the listing or underselling the competitiveness of the market won’t set your clients up for success, but it may set you up for wasted time and difficult conversations down the road.
No matter if you’re dealing with a client, colleague, child, or partner, anchoring is a skill you need to master. When done correctly, you will not just manage expectations but have a greater opportunity to exceed them.