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One of the most powerful influences that sways human behavior is known in the psychological world as the "principle of scarcity."
Many a study has conclusively shown that people attribute a higher value to items they perceive to be scarce and not so readily available.
Which, of course, accounts for the occasional "bidding war" you’re privy to witness when two or more buyers are presenting offers on the same property. Once it is know to the buyers that another equally qualified buyer actually exists then the principle of scarcity comes into play the property is viewed as even more valuable and desirable than it was just moments before.
It’s crazy, but it is a principle that can and will affect people for better or worse. In fact, I know of a young guy who has not only put himself through a very, very expensive college but has also managed to save a good sum of money using the principle of scarcity in buying and selling used cars.
His method of operation is simplistic in nature, but genius in approach. First he purchases a used vehicle that he knows he can resell at a fair profit. He fixes it, cleans it, and runs small classified ads in the paper. When people respond to the ad - he makes an appointment for them to view the vehicle. And here’s the secret to his success…
He arranges all viewing appointments to coincide at the same, exact time!
So what happens? Potential buyer number one shows up and begins kicking the tires and giving the car the once over. He may or may not be particularly interested. Then buyer #2 drives up and this young entrepreneur explains to buyer #2 that "in all fairness to buyer #1" he or she will have to hang back until buyer #1 makes a decision. Interestingly, buyer #1 gets visibly more interested in the car now.
Then buyer #3 drives up! Then #4 -and the principle of scarcity begins to burn rampant.
This young guy has told me that he never has to take less than his asking price and often gets quoted over asking price because the competition for the car seems so intense.
Incredible.
So how can you harness the principle of scarcity? Easy…
When presenting your standard CMA, emphasize how many homes are on the market in contrast with how many listings are pending final sale. What’s the ratio? Are there a 105 active listings per 1 pending sale? If so… that means there is, historically, ONE BUYER PER 105 HOMES!
By evoking this principle of scarcity you have subtly, yet powerfully, changed the perception of your seller from one of "my home is incredibly valuable" to - "oh, my gosh, how do I get my hands on that ONE buyer!" The buyer becomes more valuable and, chances are, YOU can get a price concession or whatever else you need to cinch the deal.
You can use the principle of scarcity to your negotiating advantage the next time you present an offer that isn’t automatically accepted. For instance, the seller and agent begin discussing a counteroffer - you might respond:
"Before you get too involved here, there is something I am obligated to tell you. If anything is changed in my offer, it’s invalidated, null and void, and you no longer have an offer. On the other hand, you can sell your home right now by accepting it. You can put all this uncertainty behind you and move forward with your lives. But, quite frankly, a counteroffer puts us right back to square one. And I don’t know what my people will do with it. If we look at the present realities of the market, there are X number of homes currently available and there are X number of listings pending sales. That this tells us is there is, historically, ONE BUYER for every 105 homes on the market. ONE! And right here, right now, we have this fine couple ready, willing and able to go with your home. We have our ONE buyer. And before you get too committed to making a counteroffer, don’t you think it would be wise to talk about this privately? This is a very important decision you have to make. Are you willing to chance losing the "bird you have in hand" for who knows what some where down the road? Maybe your agent and I should leave you alone for 15 minutes to discuss this…"
Then get up and head for the door - a classic "take away" technique. You take away their "control" and literally force them into a debate. Plus, you’ve initiated the steps to activate the principle of scarcity - and, chances are, you’ll get your offer accepted.
Subtle, yet very powerful.
With warm regards…
Brandon Patrick
Dean of Students
Real Estate Toolbox University
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