As a matter of sheer principle, I shouldn’t like the Overton Window. The political theory was “discovered” by the late Joseph Overton, former vice president of the Mackinac Center for Public Policy. It’s not that I dislike Joe, it’s that the center is in Michigan, which means that by default, I should question its very moral fiber. I was aware of this theory long before Glenn Beck ever popularized it with his book by the same name. It should be noted, I’m not a fan of Mr. Beck. I think his doom and gloom outlook overlooks the resilient nature of America and our deep rooted desire to be alpha consumers. Spending is fun, and he discounts that by way of asking us to hoard seeds and cans of tomato sauce. He overlooks much, but by reading Joel Kotkin’s The Next Hundred Million, you’ll see exactly what I’m talking about. Mr. Kotkin shows us an America that may be momentarily stuck in a rut, but one that has resilience and an ability to adapt that will keep us far ahead of our international competitors- both those political and economical. What was I talking about? Right. Windows. Overton ones. This theory is quite simple, though I may botch the explanation.
The Overton Window is essentially a theory that explains how the public views political policy. Within the broad scale of opinion on policy there is a huge range of emotion that runs from “unthinkable” to actual legislated “policy”. The theory goes that in this widespread opinion polling between radical policy and acceptable policy, there is a window that most will find acceptable. The concept is that politicians will present their initial proposals as radical and outrageous, so that they can effectively shift the window of public perception. In doing so, they can then idle down their radical ideas to a point of acceptability, but those ideas that we now find acceptable are still radical in fact. We just don’t view them as being outrageous and unthinkable in light of the previously more outrageous policies that were initially presented. In this manipulation of the public, there is a way to pass legislation that would be previously unthinkable, since it now seems reasonable given the more radical initial proposal (See Healthcare Reform Act to view this theory in action).
In the shift of public opinion, therein lies Mr. Overton’s window. The thing about this theory is that it doesn’t just apply to politics. It applies to everything we do. It’s like when your daughter wants to be able to stay out until 11 pm. She begs to be able to stay out until midnight. She pleads and cries foul. You put your foot down, instead allowing her only an 11 pm curfew. She was hoping for the 11 pm curfew all along, but the midnight curfew was fought for as a best case scenario. In this she was possibly able to manipulate you into feeling like you held your ground, when in reality her curfew would have normally been 10 pm anyway. This sort of expectation adjusting occurs throughout our lives, but there’s a sneaky Overton Window in action, and most times we don’t recognize it as such. The window that I’m concerned about has nothing to do with politics or familial behavior, instead it has everything to do with real estate.
I sold a home earlier this year for a million bucks. This home was gorgeous. It was a jewel, and it has since made my buyers very happy. This home was a relative value at the ultimate sales price, but in that value the theory is not yet apparent. The home had been originally listed for $2.5MM. I sold it for $1.050MM. The original list price was in no way reflective of actual value. In fact, it wasn’t even in the zip code as the actual value. This pricing concept is embraced by many in this current market, and it’s a practice that would make Mr. Overton proud. Owners, like the one reference above, are willingly pricing their homes so far out of line with the market, and it’s happening with frightening regularity even in the soft market of 2010. Sellers price their homes, potentially at values that they think are reasonable, only to drastically slash prices just a short time later. In doing this, they are adjusting perception of value by skewing prices much higher than they have any reason to be, and then quickly adjust the price to a more reasonable level that is still higher than the actual value. I fear I’m not making any sense.
Consider a current listing on the market in the Lake Geneva vacation home market. The home, in my opinion, is worth somewhere around $1.9MM. I told this to the seller, and shortly after another agent listed the home for $2.9MM. The price was way too high, and I believe most knew it. The price was then quickly slashed to $2.5MM. The price now appears reasonable, and the seller appears to be adjusting to the current market, by way of her $500k price cut. In fact, the price is still way too high, by as much as $600k. In spite of this valuation, the seller may have in fact enticed a few more buyers by effectively shifting the Overton Window of his own pricing. By starting out at a radical number and adjusting to a number that is still far out of bounds, the price may now appear acceptable to some when viewed only against the prism of the previously ludicrous list price.
All that to say this- beware the affects of an Overton Window. Don’t let a misleading list price skew your thinking and ultimately lull you into thinking a current reduction, no matter how severe, has brought the property in line with the market. Whether sellers and brokers know they are practicing a perception shifting theory like the one Mr. Overton explained, the results of the practice are the same. By manipulating pricing expectations to the high end, price reductions that still do not bring the affected property in line with current value are able to, at times, peak buyers interest even though the current pricing is still far too high. It’s the Overton Window, real estate style.