Imagine yourself in a dilemma that only a privileged few get to experience: You’ve fallen in love with a dazzling, one-of-a-kind home that’s on the market, but it doesn’t have a listing price. Instead, the seller’s broker is encouraging you to name what you’re willing to pay. An offer well into the millions seems expected, but how high will you need to bid? Without an asking price, you feel unmoored and unsure of where to begin—yet desperate to win the prize.
Refusing to attach a sale price to a property is an unusual but not unheard-of practice in luxury real estate, writes Katherine Clarke in a recent New York Times article. For particularly desirable or unique properties, sellers and their brokers may choose to let buyers make the opening bid rather than anchoring with a list price.
Alternatively, sellers may advertise the price as “available upon request,” meaning only shoppers who have visited the property and are seriously interested should inquire. In 2015, for example, real-estate agent Michael Dreyfus listed a home in Palo Alto, California, with the price available on request. He believed $5.5 million was an appropriate asking price for the home, but its interiors had just undergone a stunning redesign, and he and the owner believed that if they could get people through the door, someone would fall in love with the home and bid much higher. Though Dreyfus admits he “did get laughed at a bit” when he disclosed the $7.5 million asking price to visitors, the house eventually sold for $7 million.
Beyond the world of high-end real estate, the decision to keep price under wraps raises interesting questions about when sellers should disclose price and when they should keep it hidden.
At first glance, it would seem that a home seller who fails to disclose a home’s price has it all wrong. Abundant research on the anchoring effect, documented by psychologists Amos Tversky and Daniel Kahneman, shows that the first offer made in a negotiation serves as an anchor that has a strong effect on the final price. For this reason, negotiators are often advised to try to gain an advantage by making the first offer.
Moreover, some brokers caution that leaving a home unpriced limits the pool of buyers, as it cannot be listed on popular online real-estate websites, such as Zillow, Trulia, and Realtor.com, without a price. Sotheby’s International Realty senior marketing VP Bradley Nelson told the Times that not naming a price is “like being half pregnant” and can reflect owners’ ambivalence about whether they really want to sell.
In fact, the answer to the question of whether to make the first offer is more nuanced than a clear yes or no. An in-depth analysis of your bargaining position and that of the other party is needed to determine the best course of action, given your situation.
First, you need to assess your best alternative to a negotiated agreement, or BATNA; your target; and your reservation price—your point of indifference between accepting a deal and pursuing your BATNA. Next, you will need to estimate your counterpart’s BATNA, target, and reservation price. That analysis will help you identify the zone of possible agreement, or ZOPA—the range of options that both sides would find acceptable.
When you believe you know more about the ZOPA than the other party, you generally should feel comfortable dropping an aggressive anchor, one near the top of the ZOPA. This is typically the case for sellers who know a great deal about what they’re selling—and likely more than the buyer does. The longtime owner of a house generally should feel comfortable advertising an ambitious list price, for example.
By contrast, when your counterpart knows more about the ZOPA than you do, it will be difficult for you to drop an effective anchor. A job candidate, for instance, may be in the dark about the possible salary range for a given job relative to the recruiter. Because of the risk of asking for too little, the candidate might be wise to let the recruiter make a salary offer.
Similarly, homeowners may choose not to name their price because they simply aren’t sure of their property’s market value. Take the case of an unfinished home that will take time to complete. To allow the asking price to fluctuate with the market over time, the seller might not state a price up front.
When a commodity is unique or offers special value to certain bidders, sellers may also see an advantage in allowing buyers to bid first. As we saw earlier, that’s what real-estate agent Michael Dreyfus anticipated when he put the newly designed Palo Alto home on the market.
In auction lingo, an item that offers different value to different bidders is known as a private-value asset. One bidder might want to procure the painting you’re selling as an investment piece, while another bidder may covet it because his great-grandmother was the artist. By contrast, common-value assets, such as an oil lease or a condo in a large new building, have more or less equal value to all bidders—the price may fluctuate over time, but it’s worth the same amount to all potential buyers in the present.
When a private-value asset is for sale, one or more bidders may be willing to pay much more than others would. If you think that’s a possibility, you might decide to leave the price unspecified and hope you can find at least one, and preferably several, of these bidders.
Relatedly, according to the well-documented scarcity principle, people are willing to pay more for items that are rare, such as a unique property or lunch with a celebrity auctioned off for charity. In his book Influence: Science and Practice (2009, Pearson), Robert B. Cialdini explains that “opportunities seem more valuable to us when they are less available.” Why? Because potential losses tend to loom larger in our minds than potential gains, we can feel highly motivated, even desperate, to avoid losing something we might not ever find again. Buyers may be tempted to bid high for scarce items, so sellers might want to let them open first.
Turning to the buyer side, when a seller asks you to bid first or is cagey about disclosing the price, keep in mind that she may be hoping that emotion will drive your decision making. In such situations, you could end up overpaying and regretting your purchase.
To make more rational decisions, try to fall in love with several properties (or whatever commodity you’re shopping for) rather than just one, advises Harvard Business School professor Max H. Bazerman. When you have one or two appealing BATNAs to turn to, you’ll be less tempted to overbid in the current negotiation. Moreover, if you believe the seller is less certain than you are about an item’s market value, try to persuade him to drop the first anchor, as it could be in your favor.
A seller may choose to skip the price tag for several other reasons:
Privacy concerns. You might want to keep the price under wraps to reduce the amount of information that’s publicly available about your assets and finances. In an era where home prices are typically just a click away on the Internet, privacy concerns can motivate sellers of luxury homes to skip the listing price, according to the New York Times.
Getting them through the door. Allowing people to fall in love with an expensive item before they experience sticker shock is a common sales tactic. “If you have to ask, you can’t afford it,” goes the old adage. That’s not necessarily true, but getting customers emotionally attached to your product before revealing its price does make strategic sense.
Generating a buzz. Upending the conventions of negotiation for a given item can make it seem unique. By creating an air of mystique around a commodity, you can help it stand out from the pack and perhaps drive up the price.