I am fascinated with the topic of investor emotion, and the effect it has on lowering investment returns.

Applied to housing, I have come across the following comments. Homeowners are different than other types of investors. They would rather take their homes off the market, than accept an offer yielding a price lower than what their neighbor got last month.

This reluctance to sell explains why sales decrease prior to price declines. It takes months of slowing sales before prices are pressured to reduce. This is because the homeowner has a target price: an amount they need, or think they should get.

Emotion plays into it. A realtor can show a seller his home’s value, based on several comps. My friend did this last week with her sellers. She prepared an Excel spreadsheet, with indoor and outdoor pictures, list and sales prices of comps. She showed her sellers that the other houses also have granite counters, nice landscaping, pool, new roof/windows, remodeled bathrooms. Yet, the other houses are priced lower than the subject site. Yes, the sellers nod, but their house is unique because of x,y,z. No, my friend tells them, those houses have that too. Well, the sellers say, it makes sense what you say, but we’re keeping our price where it is. Someone will appreciate our house like we do, and offer the price we want. When this house came on the market, they were priced as the others, now they are higher than the current listings.

I feel like a scientist watching a social experiment. I know the outcome, so I am watching with fascination. Why don’t the sellers see what I see? Why can’t the realtor convince them?

Beware of letting emotion guide your investment decisions. Treat selling your house as you would the sale of any other asset. Take the emotion out!