The Curse of Knowledge: How this Cognitive Bias Can Cost Home Sellers a Small Fortune

by Sander Scott
September 7, 2023
General

Watch this Video for a quick explanation of The Curse of Knowledge: https://www.youtube.com/watch?v=w3jte8XzvGUI see the Curse of Knowledge play out with home sellers all the time, especially if they have lived in the home a long time. You get used to things. You know. You’ve lived there a long time. Here are some examples I’ve seen of The Curse of Knowledge in Real Estate:

You know that an old fuel oil tank sitting in the basement is no big deal.You know cracks in drywall are not a big deal and can be easily fixed by a professional painter.You know that the water stains in the drop ceiling are from the water pipes “sweating” when you forgot to turn on the dehumidifier in the basement. It’s not a big deal.You’ve gotten used to the damage in the siding on the side of the house that happened when you had your grill too close to the house.You’ve gotten used to the fact that the lock on the basement door doesn’t work.

I can go on and on.By the way, everyone is susceptible to The Curse of Knowledge. It’s one of the main reasons it’s so important for sellers to work with a full time real estate agent who is very active (doing a lot of deals) in the market. Why? Because they are interacting with buyers and sellers and “racking up” a lot of experience to be able to see things that seem like “no big deal” to a seller, but may be a serious deterrent to a buyer. Full time real estate agents doing lots of deals help sellers avoid the cognitive bias trap of the Curse of Knowledge.An example of the curse of knowledge playing out in a real estate deal is when I represented a buyer on the sale of a property that had an old fuel oil tank in the basement. It was left over from when the home had a fuel oil furnace. It had some left in it, and the presence of it was concerning to my buyer. I was able to allay their fears about the tank, because I have experience with removing several fuel oil tanks from various homes that either I have owned or my relatives. Later, I learned from interacting with two other buyers that they were super interested in the same property but the fuel oil tank was a major concern so they shifted their attention elsewhere.You see, when you’re selling a home, getting multiple parties interested and “loving” the home is key. This is sometimes called a “bidding war.” I’m not really a fan of that term but it is definitely true that when buyers know there are other interested parties, they tend to make better offers. Better offers mean better deals for sellers. When you avoid the curse of knowledge and take care of things that may be of concern to a buyer (but that you think are no big deal), you get

More MoneyExtended Time After Closing to MoveCash OffersAppraisal Gap GuaranteesEscalation ClausesAbility to Choose the Closing Date (Can Be Very Important if Capital Gains Taxes are a Factor)Back Up OffersInspections WaivedMore Earnest Money Deposit

So, when you are putting your home up for sale, it’s very important to get that outside perspective to ensure that the cognitive bias CURSE OF KNOWLEDGE doesn’t cost you tens of thousands of dollars and other advantages that you could have realized by better preparing your home for sale.