Anchoring effects in appraisals - a study of Swedish Real Estate students

Purpose - The objective of the research is to investigate the anchor effect in appraisal of residential property based on a quantitative survey among Swedish students at a program for real estate brokerage.Prior research has identified various factors that influence price perceptions, including factors that affect assessments of the perceived value of products to consumers and, relatedly, the reference prices consumers use to evaluate the attractiveness of given prices (e.g., Winer 1986). Although the determinants of reservation prices have been extensively studied, there has been much less research regarding the manner in which consumers decide on the lowest price they are willing to accept for a product (for exceptions, see, e.g., Carmon and Ariely 2000; Kahneman, Knetsch, and Thaler 1990). The value appraised is individual and may depend on different parameters such as tacit knowledge and personal taste. Tversky and Kahneman's (1974) seminal work on anchor effects reveal that an external number, referred to as anchors, influence the value people will estimate a given object. Within real estate valuation Northcraft and Neale (1987) applied the same idea on real estate, conducting a study in which both students and real estate agents were to value the same house while changing the conditions regarding asking price for the house. Although the asking price should not affect the valuation of the market value, the study concluded that both real estate agents and students were positively affected by the asking price.Design/methodology /approach - An experiment with students was conducted where they were to value two different properties. The experiment tasks were design to be both representative of real valuation situation and to be relevant for the students in their course as a kind of rehearsal. They were not informed of the experiment's manipulative design nor the research objectives. A total of 53 students, all in their last semester in the real estate broker education within the course of Real estate valuation, participated in the experiment and were divided into group A and B. In addition one more group was included. This group C consists of 17 participants who all are employed as assistant at broker firms and undertaking in service-training in order to become licensed real estate brokers. This group was included to be used as a control group since they can be considered as semi-professionals or at least to have practical pre-knowledge.