F.O.P.A.T.O.M – The FEAR OF PAYING TOO MUCH……This is a concept that just this week won a NOBEL 2020 Economics Prize for U.S. academics Paul Milgrom and Robert Wilson for their work on auctions hailed as benefiting buyers and sellers around the world of everything from fishing quotas to aircraft landing slots. Wilson showed that rational bidders tend to place bids below their own best estimate of what he called the “common value” – that is when the value of an item is deemed to be the same for everyone – for fear of paying too much.
I’ve heard this from buyers for years…..their fear of paying too much when bidding. It is a genuine fear and one we should always take note of and address seriously and substantively. This fear worsens in a multiple bidding scenario where buyers worry emotions are overtaking rational thinking. Multiple bidders always want to avoid the so-called “winner’s curse” of over-paying: what exactly happens when bidders know their rival bidders’ perception of value? It amazes me often how even the toughest, wealthiest buyers’ greatest fear is that SOMEONE will identify that they paid more than someone else for the same or similar thing…..HORRORS!
Data is important in evaluating a price you are willing to pay, so buyers should identify good reasons that they assigned a higher value than other bidders so that it doesn’t just mean that they have overestimated what the thing is worth. Substantive insights about the data are important but with so much data these days focused on closed sales, it’s as important to have insights on signed contract data as the market is happening. Other unique and specific aspects of the property matter too. This is where the human element – the agent – can inject their best and highest value by providing real-time, curated insights, specific to the property under consideration.