Spot anchoring and deadline pressure when you buy property, a car or anything else large.
Before you open a single listing or walk into a showroom for your next large purchase, write down the highest price you would accept and your reasons for it. The first price a seller names tends to become the yardstick for everything that follows. A figure you wrote down earlier gives you a yardstick of your own to measure against.
Hui Min and her fiance Wei Jie (an invented example, with made-up figures) viewed a resale flat in Bukit Batok on a Saturday morning. The agent opened with an asking price of S$688,000. The agent also said two other couples were viewing that afternoon and the seller wanted an answer by Monday.
By Sunday night they were debating whether S$670,000 would be a fair offer. Neither of them had worked out beforehand what the flat was worth to them, so the agent's figure stood in for the number they had never set. S$670,000 felt like a tough offer next to S$688,000, but neither figure had been tested against what they could afford.
Anchoring is when the first number you see pulls your later estimates toward it, even when you know that number was chosen arbitrarily. Lesson 5.2, "Anchors and confirmation", in Critical thinking and better decisions explains it in depth. Lesson 4.3 shows how crossed-out prices in shops work the same way. With flats and cars the mechanism is identical, but the sums are much larger.
With a resale flat, the asking price is the anchor. You judge each counter-offer by how far below the asking price it sits. As a result, a counter-offer can feel like hard bargaining even when the flat is worth less to you than either figure. At a new launch, the show flat quote sets the reference point. It pulls harder when you see it beside the higher prices of "units already sold" or a future price list. In a car showroom, the list price or the first package offered sets the scale. You then weigh every discount, free servicing deal and accessory bundle against it.
Asking prices are a normal part of negotiating, so an anchor is not necessarily a trick. Keep in mind, though, that the person setting the anchor benefits from a higher price. The anchor also affects your judgement whether or not you notice it.
Big-ticket sellers often attach a deadline to the decision. You may hear "Another couple is viewing this afternoon", "The price goes up after launch weekend", "Only three units left in this stack" or "This package ends at month end". Some of these claims are true, but all of them shorten the time you have to compare.
Loss aversion, covered in lesson 2.2, makes this pressure stronger. A deal you might lose seems worth more than it did a few minutes earlier. Hui Min and Wei Jie had two deadlines on them at once: the other couples viewing that afternoon and the seller's Monday cut-off.
On launch days, a packed sales gallery seems to prove that the price is reasonable. Herding is treating a crowd as evidence of a fair price. Lesson 6.3 looks at the same behaviour among stock market investors. A crowd shows you the level of demand, but it says nothing about whether the price fits your budget.
People tend to give a decision less attention the more is at stake. Someone might spend an evening comparing phone plans to save S$5 a month (an illustrative figure). The same person might then sign for a S$600,000 flat or a S$150,000 car after two viewings and a weekend of pressure (also illustrative).
There are three reasons for this. Big purchases are rare, so you get little practice at them. The selling process is often designed to move fast. And large amounts make smaller gaps feel insignificant. A S$10,000 difference on a flat can sound like rounding, even though many people do not save that much in a year.
The effort you put in should grow with the size of the decision. That means more viewings, more comparisons, and above all your own figure ready before anyone gives you theirs.
To counter a seller's anchor, set your own first and base it on your own numbers:
Work out what your budget can carry. Find out what loan you can actually get and keep up with. Property & Mortgages lesson 4.5, "Work out your own maximum loan", shows how to calculate this. Look up recent sale prices of comparable flats or cars. For resale flats, HDB publishes recent transaction prices, so you can see what flats of the same type nearby actually sold for. Settle on the most you will pay, write it down with your reasoning, and treat it as your limit.
Comparable sales also help you avoid paying far above valuation on a resale flat. Property & Mortgages lesson 6.2, "Valuation and cash over valuation", explains the consequences of doing that.
If you are buying with someone else, you can add an optional safeguard. Agree that neither of you will go above the maximum without sleeping on it and re-checking the budget. You can set your own version of this rule.
Hui Min and Wei Jie started again this way. Using their budget, their loan limits and recent sales of similar flats in the same area, they set a maximum of S$625,000. They wrote down how they reached it. They agreed that neither would go above it without a night's sleep and a fresh look at the budget. The Bukit Batok flat sold to someone else. Three weeks later they offered S$612,000 on another flat, and the seller accepted.
When you are negotiating, notice each anchor, deadline and crowd as it appears. Compare every offer to the number on your paper and not to the seller's.
Now think about your next big purchase, whether that is a flat, a car, a renovation or something else. Decide the maximum you'd pay for it before you look at a single price.
Before you look at any price, write down the most you would pay for your next big purchase.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).